Rabobank upbeat about Australian dairy, forecasting jump in milk production

The bank's assessment is considerably more positive than other forecasters.

It is tipping a 2.6 per cent growth in milk production this season with growth to continue in the 3-4pc range for 2024-25.

ABARES is tipping milk production growth this season but a fall next season.

It its March 2023 Agricultural Commodities Report, it forecast milk production to be up 1.8pc for 2023-24 but down 1pc in 2024-25.

Dairy Australia is tipping a 1pc increase this season but sees pressure ahead for the sector next season.

"There is no escaping the persistent economic challenges that lie ahead, and the 2024-25 season is likely to see increased pressure on profitability as global dynamics force an equilibrium here in Australia," the Dairy Australia March Situation and Outlook report said.

"However, increased export returns, strength in the Australian domestic market and growth in national milk production can all help alleviate our share of the global gloom over the rest of the 2023-24 season."

Rabobank sees plenty of upside for dairy in the next year or so.

In its recently-released Q1 Global Dairy Quarterly report, the bank said summer rainfall had far exceeded expectations across much of Australia's east coast, providing a good platform for livestock producers.

Report co-author, Rabobank senior dairy analyst Michael Harvey said Australian dairy farmers were expected to enjoy a strong 2024.

"With milk prices remaining elevated, expectations are that new season pricing from July 1 will be margin-supportive," he said.

"And there is plenty of homegrown feed in storage, and purchased feed is affordable."

The bank also reported increased confidence among dairy farmers.

Rabobank group executive for Country Banking Australia Marcel van Doremaele said confidence among dairy farmers had increased as they looked ahead to the new season milk price.

Their net confidence level had lifted from -42pc to -7pc.

"Dairy margins are tipped to remain positive thanks to ongoing domestic support for farmgate prices," Mr van Doremaele said.

Mr Harvey said although the domestic Australian dairy market was stuttering, it was expected to improve in 2024.

"The financial health of Australian consumers is anticipated to improve as the year progresses, wages increase, tax cuts kick in and inflation normalises," he said.

"And there are also potential interest rate cuts on the horizon.

"However, it is not all smooth sailing for consumers, with domestic economic growth for 2024 revised downward and unemployment revised upwards."

Mr Harvey said disinflation was visible across Australian dairy grocery aisles.

"Still, consumer prices are 20pc higher than before the inflation cycle," he said.

Mr Harvey said Australian dairy exports had been under pressure in the first six months of the season.

But the gap between local and offshore farmgate milk prices had narrowed as milk prices in competitors' regions increased on the back of improving commodity markets.

The Rabobank report said global dairy prices had improved amid ongoing supply and demand challenges.

But despite the positive trend, dairy farmers worldwide continue to face margin challenges.

"Against a backdrop of buyers with adequate inventories and macroeconomic concerns, global dairy demand has shown sluggishness in recent months, and milk supply growth continues to struggle," the report said.

The bank expects the recent equilibrium between weaker supply and weaker demand will slowly shift throughout 2024, with prices moving to the upside as milk production continues to struggle but demand subtly improves.

"Slow, but steady, price increases among most dairy commodities will materialise in the coming months," Mr Harvey said.

"It will likely not be a record price year by any measure, but farmers around the globe will welcome the return to profitability."

Mr Harvey said looking ahead, there was increasing evidence demand was on the upswing, with recessionary fears abating in some countries and a modestly improved economic outlook.