ABARES forecasts 14 per cent fall in milk prices for 2023/24

Farmgate milk prices will fall 14 per cent next season and a further 8pc the season after that, according to ABARES.

But milk production would stabilise in the medium term, ABARES economist Alistair Read said in the March 2023 Agricultural Commodities Report, released to coincide with the Outlook conference in Canberra.

Australian dairy exports would increasingly be focused on higher-value markets, which would see processors mothball facilities involved in low-value powder production lines.

Mr Read said average farmgate milk prices would finish this season at 72.6 cents a litre ($9.55 a kilogram milk solids) before falling 14pc to 62.5c/L ($8.22/kg MS) in 2023-24.

Prices would fall to 57.4c/L ($7.55/kg MS) in 2024-25, before rising slowly to 59-60c/L ($7.76-$7.89/kg MS) due to rising global dairy prices and minimal growth in domestic milk production.

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Mr Read said after falling this season, milk production was expected to stabilise, despite the decline in cow numbers.

"In 2023-24, milk production is expected to remain at 8 billion litres due to rising milk yields being offset by declining cow numbers," he said.

Strong export demand from China for Australian heifers in the wake of New Zealand's ban on live cattle exports would put pressure on herd numbers, as would the continuation of farm exits driven by strong beef prices and high land values.

But dairy is still a vital contributor to Australia's agricultural production.

"The gross value of milk production is forecast to rise by 20pc to $5.8 billion in 2022-23," Mr Read said.

"A sharp increase in the farmgate milk price is expected to more than offset a decrease in milk production."

The value of production is expected to fall as farmgate milk prices fall but after 2024/25, the real value of production would recover.

"By the end of the forecast period, the real value of milk production is projected to reach $4.8 billion in 2027/28," he said.

Dairy exports were also holding up, despite falling production.

"Over the medium-term, the real value of dairy exports is expected to decline slightly but remain at elevated levels when compared to the last decade," Mr Read said.

Cheese is the poster child for Australian dairy exports.

The value of Australian cheese exports is forecast to rise to $1.2 billion in 2022/23, due to a 24pc increase in the export price of cheese on the back of strong Japanese demand.

"Solid ties between Australian dairy exporters and Japanese importers, and a strong preference for Australian cheese in the Japanese food service sector - due to the specifications of Australian cheese and how it is manufactured - have seen Australian cheese exports maintain a price premium in Japan," Mr Read said.

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A potential free-trade agreement between Australia and the European Union could have mixed repercussions for the Australian dairy industry.

The EU wants to restrict Australian use of certain cheese names that could impact the competitiveness of those cheeses.

But if the deal saw a reduction or removal in the average 32pc tariff imposed on dairy imports from Australia, it would benefit exporters.

Mr Read said China remained the key for global dairy demand.

"The lockdowns in China during the COVID-19 pandemic have reduced Chinese demand for dairy products," he said.

"At the same time, China has experienced robust growth in domestic milk production, which is expected to reduce their demand for dairy imports."

Chinese demand was expected to rebound but increases in domestic production would mean its overall demand for Australian imports was likely to stabilise.

But demand for Australian products from other countries, including Indonesia and the Republic of Korea, was forecast to increase.

READ MORE: Global milk production sails ahead but Australia stuck in doldrums

Global milk supply is expected to grow slightly but faces significant constraints.

"The EU, New Zealand and the United States account for a significant proportion of global dairy exports," Mr Read said.

"These countries are also implementing several sustainability and emissions targets.

"Agricultural exporters, including Australia, will be under increasing pressure to improve sustainability credentials and reduce the emissions intensity of their products in a global market where governments, along with consumers and investors value sustainability."

Mr Read said this meant the average rate of growth in milk production was expected to be lower than during the 2010s.

The US was projected to be the driver of growth in world milk production, due to both rising milk yields and a higher number of milk cows.

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