March 2021 update from Australian dairy industry

The March update provides an analysis of production and pricing trends for Australian dairy producers. It provides producers with a timely overview of current trends and an outlook for the coming months.

Overview:

• Milk supply is expected to increase as autumn conditions set in across the country.
• Profitability remains strong driven by low input costs, step ups to milk price and low interest rates.
• Chinese demand for dairy products is yet to be satisfied and further stockpiling of milk powder will keep prices high in March.

Supply continues to move higher in southern states driven by exceptional seasonal conditions for this time of year and an abundance of stored feed. This has led to dryland dairies in Tasmania reporting a notable improvement in summer milk supply, setting farmers up well for what is forecast to be a cold, wet winter. On the mainland, the absence of hot spells has decreased the reliance on stored feed and prolonged pasture growth particularly in Gippsland and South West Victoria. Strong global dairy prices have prompted two major processors to offer a step-up of 10 cents per kilogram milk solids, with the expectation that other processors will follow. The increase in milk price combined with high chopper cow prices, low interest rates and low input costs continue to improve profitability in the industry.

Feed grain prices are likely to remain flat this month with little variation in demand. Hay prices remain steady as demand is likely to remain subdued for the rest of FY21.

Global dairy prices continue to push higher, driven by large increases in purchasing from China and South Asian countries. In comparison to the January to March period last year, China has purchased on average 48.9 per cent more product per auction on the Global Dairy Trade platform in 2021. Milk powder has been the product of choice, with the first auction event for March recording a 21 per cent jump to the average price for whole milk powder. The increase was in part due to a decline in supply however the trend of stockpiling milk powder in 2021 looks likely to continue this month. This is positive news for processors despite an appreciating Australian dollar.

Global Market scenario

Overall, the global market is experiencing strong demand for most finished products with current prices for SMP and cheddar sitting well above the five-year average.