THE big declines in milk production are starting to ease on the back of improved margin drivers on farm and analysts say the corner could be turned as early as next season.
However, any response to increases in farmgate prices will be dependant on input costs staying low and the lift in volumes produced will more likely be a slow burn, according to Dairy Australia senior analyst John Droppert.
Milk price step-ups to the tune of 40 cents a kilogram milk solids in the south have assisted the cash flow situation for some but production margins still remain tight or negative and rebuilding equity after such a tough 12 months will be a significant task, he said.
Dairy Australia’s February Situation and Outlook report, released today, shows the year-on-year drop in Australia’s milk production has moderated from over 10 per cent for the first four months of last year to 8.5pc for the July to December period.
It is expected the gap will narrow further but full season production will still be down 6 to 8pc on the 2015-16 total of 9.5 billion litres.
Mr Droppert said the huge variation across companies in milk price was amongst the largest seen in recent times.
It should converge more towards the end of the season as companies find they need to catch up in order to hang onto milk, he said.
No one was expecting massive production growth any time soon and as the lifts in volume came through, the variance between regions would be strong, he said.
Large numbers of cows were culled as the devastating margin situation coincided with record beef prices and dairy herds take a long time to rebuild.
“Anecdotally we are hearing there are heifers around, and lower export numbers would support that, so there is potential for a bounce in production next season,” Mr Droppert said.
However, he acknowledged some dairies had been decommissioned and many people had look to other income streams, such as running more beef cows, contract work and selling hay.
“Where people are still milking, but just less numbers, when the numbers stack up, they should come back to dairy,” he said.
“That said, it takes time and it certainly won’t happen this season.”
The report shows the volume of global dairy products traded over 12 months to the end of October rose by just over 7pc, with a recovery in demand from Greater China accounting for around a third of that growth.
In addition to robust export demand, dairy sales in the Australian supermarket channel outgrew the rate of population increase (1.4pc) for each of the major categories except yoghurt.
Mr Droppert said on a long term basis, that was unusual.
“Butter sales have continued to increase for many years, driven by health messages,” he said.
“But it appears the washup from the publicity of price step downs has seen consumers put more dairy overall in their trolley in a bid to support farmers.”
Cheaper unit prices, particularly where cheese is concerned, also perhaps played a part, he said.