Australian milk production to continue to fall: Freshagenda forecast

Production is tipped to fall 3-5 per cent in 2023-24 on top of a forecast 6pc fall for the full 2022-23 season, according to Freshagenda's Southern Australian Milk Price Outlook report released on earlier this month.

This would take Australia's production as low as 7.6 billion litres - a 40pc fall on the peak 11.27 billion litres produced in 2001-02.

The report pointed to uncertainty about the season and grain prices and the impact of cows that exited the industry this season as factors in the likely continued decline.

But the report was not all bad news for farmers.

"While milk prices will likely be lower per this outlook, the margins on-farm should be favourable compared to the prior year with lower input costs for feed grain and fertilisers," it said.

And Australian dairy commodity prices remain disconnected from Oceania export prices due to the general shortage of milk and butterfat deficit in the Australian market.

Freshagenda's Australian spot commodity milk values (CMV) were about $8.20 a kilogram milk solids in early May - a whopping 25pc high than CMV based on NZ export prices (which were about $6.50/kg MS).

Although commodity prices have been under pressure in recent months from weaker global markets and weaker domestic retail demand, Freshagenda is forecasting Australian CMV for 2023-24 to average $8.50/kg MS.

This and demand from fresh milk buyers in the face of declining supply should flow through to farmgate prices. Freshagenda said Coles set the benchmark for fresh milk buyers earlier in the year when it announced milk prices averaging $10.30-10.50/kg MS through to 2024-25.