Dairy and Products Semi-annual

An Expert's View about Food , Beverages and Tobacco in Australia

Last updated: 30 May 2011

A shortage of dairy cows for herd expansion is expected to constrain larger increases in production while a high Australian dollar value is expected to constrain exports from exceeding Post’s forecasts.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 5/11/2011 GAIN Report Number: AS1112 Australia Dairy and Products Semi-annual 2011 Approved By: Grant Pettrie, Agricultural Counselor Prepared By: Mike Darby, Agricultural Specialist Report Highlights: Dairy production and exports are forecast to increase in CY 2011 as production conditions continue to improve. This represents a turnaround in the long-term decline experienced in the dairy industry since the drought began in CY 2002. A shortage of dairy cows for herd expansion is expected to constrain larger increases in production while a high Australian dollar value is expected to constrain exports from exceeding Post?s forecasts. Robust domestic economic growth is expected to see domestic consumption continue to grow. Summary: Eastern Australia appears to have fully recovered from the severe and record breaking drought which commenced in CY 2002 and began to end with widespread and soaking rains on Christmas day 2009. CY 2010 has been compared with the legendary rainfall year of 1974 which saw devastating cyclones in northern Australia (Cyclone Tracey) and heavy flooding in southern and eastern Australia. Flooding in 2010, particularly in the key dairy producing areas of northern Victoria, constrained dairy production below Post?s previous expectations. Normal rainfall conditions have been assumed in CY 2011 and this should see production increase. Source: Australian Bureau of Meteorology Data Widespread rainfall and flooding has seen irrigation reservoirs completely recharged and this is expected to boost production of fluid milk going forward, particularly in the crucial irrigation areas of northern Victoria and southern NSW. Fodder availability has also improved sharply and, combined with improved pasture conditions, should see milk yield continue to increase. The greatest constraint to fluid milk production going forward is the shortage of dairy cattle available for herd expansion. This will likely constrain production, at least partially, for 2011 and beyond. Consecutive years of drought have seen the dairy herd fall to its lowest level in memory. Despite increased domestic supplies of grain, historically high grain prices are also likely to place some constraint on fluid milk production. However, improved supplies of irrigation water are likely to see larger volumes of pasture produced, mostly circumventing the effect of high grain prices. The Australian dollar recently reached a record high of $US1.10 and this is expected to see growth in exports somewhat constrained in CY 2011. Strong growth in the Australian economy is likely to see domestic consumption continue to grow steadily in CY 2011 and beyond. Imports of US cheese are likely to continue to grow. Commodities: Dairy, Milk, Fluid Dairy, Cheese Dairy, Butter Dairy, Dry Whole Milk Powder Dairy, Milk, Nonfat Dry Dairy Cow Numbers Total Cow Numbers Dairy cow numbers are forecast to increase to 1.57 million head in CY 2011, up slightly on the estimated 1.55 million head for CY 2010, representing the first substantial increase in cow numbers since CY 2001. Prices received for dairy cows are historically high, driven by a sharp increase in demand as producers seek to increase herd numbers in response to improved seasonal conditions. Source: ABARES Data Dairy cow numbers have been falling in Australia since 1965, according to historic ABARES figures, as the industry continues to rationalize. The primary reason for falling cow numbers has been a decline in dairy farms and increased cow productivity levels. Over time, the total number of farms has continued to fall dragging total cow numbers lower despite the continued increase in herd sizes of remaining dairy farms. While it is possible for cow numbers to increase sharply, dairy cow numbers are expected to rise steadily going forward. Industry sources urge caution in regards to the potential for increases in cow numbers. Falling farm numbers, milk price discounting and competition for land and labor from other industries are expected to continue to slow the growth in total cow numbers for the foreseeable future. ABARES expects improved fodder supply and pasture conditions to see modest consecutive increases in cow numbers out to 2014/15. Traditionally, Australian dairy farms have been located adjacent to large urban populations in capital cities on the coast. However, as urban development has increased, producers have sold their land and relocated to larger regional holdings in inland Australia. Technology advances in irrigation and transport have aided this relocation. Many producers selling farms have opted to retire and exit the industry and this has seen farm numbers fall. Fluid Milk Production Fluid milk production for CY 2011 is forecast to increase to 9.6 MMT and represents the first increase in fluid milk supply since CY 2002. A continued increase in milk yield per cow is expected to see production increase, assisted somewhat by a small increase in cow numbers. Source: ABARES Data Despite the forecast increase in fluid milk production in CY 2011 to 9.6 MMT (9.32 billion liters), this level would be considered well below the historical average. Fluid milk production for CY 2010 has been revised downwards to 9.33 MMT, below the 9.4 MMT previously reported by Post. Despite improved irrigation water supplies previously expected to lift production, persistent heavy rainfall combined with flooding in the worst affected areas prevented increases in fluid milk production previously expected by Post. Industry sources suggest these conditions effectively limited access to pasture and created shortages of pelletized fodder commonly fed indoors. Policy ? Pricing Australia purports to have the only deregulated dairy industry in the world. However, since deregulation in CY 2001, the pricing of fresh milk at the retail level has been controversial. Accusations of large retailers unsustainably discounting retail milk to the detriment of farm gate prices persist and have been very loud in CY 2011. Coles Supermarkets, Australia?s second largest retailer, recently implemented a new national pricing policy. This policy has effectively discounted retail prices for meat, seafood, dairy, deli and bakery products and has seen milk sold for as little as AUS$1 per liter in Coles supermarkets. This compares to double the price for ?branded? milk. This new policy has drawn negative reaction from the Australian dairy industry and has received much media attention. Serious concerns were raised that the pricing strategy was unsustainable and anti-competitive. The issue was referred to a Senate Committee in February 2011. The Committee has received 151 submissions and has held public hearings. The committee has recommended that ?the government table a formal response to the recommendations outlined in the previous Senate Committee Inquiry into dairy pricing? (conducted in CY 2010) before further recommendations can be made. http://www.aph.gov.au/senate/committee/economics_ctte/dairy_industry_supermarket_2011/inter im_report/report.pdf Dairy, Cheese Cheese production for CY 2011 is forecast at 328 TMT, up around three percent on the revised estimate for the previous year. This increase is roughly in-line with the forecast increase in fluid milk supply. Estimated production for CY 2010 has been revised downwards to 319 TMT in line with up-to-date industry data. An unforeseen shortfall in the supply of fluid milk due to flooding and heavy rain is likely to have constrained cheese production in CY 2010. According to ABARES reports, stronger demand for other dairy commodities (such as milk powders) is likely to have encouraged the production of other dairy commodities. Source: ABARES Data Exports of cheese for CY 2011 are forecast to increase around three percent to 170 TMT in line with forecast increases in production. Imports of cheese from the United States increased again in CY 2010 driven by a stronger Australian dollar and strong demand from the food service sector. Industry sources report a large Australian pizza chain recently switching to US cheese for pizza production. Dairy, Butter Total butter production for CY 2011 is forecast to increase to 111 TMT in line with increased fluid milk supply. Estimated production for CY 2010 has been revised downwards slightly to 108 TMT in line with up-to-date industry data Source: ABARES Data Exports are forecast at 66 TMT, up on the revised estimate for the previous year. Historically, butter production has tended to decline over time in line with consumer demand, exports however have tended to fluctuate more widely. Dairy, Whole Milk Powder Whole milk powder (WMP) production is expected to increase around three percent in CY 2011 following large increases in CY 2010. The recent large increases appear to be slowing in CY 2011, according to monthly industry production data. Source: ABARES Data Exports for WMP are also forecast to grow around three percent in CY 2011, despite the large upward revision for exports in CY 2010. A record high value for the Australian dollar, which recently reached $US1.10, is expected to cool export demand in CY 2011 and this is expected to see both production and exports of WMP fall. Dairy, Nonfat, Dry ? Skim Milk Powder Skim milk powder (SMP) production is forecast to increase around three percent in CY 2011 to 230 TMT. This increase remains well below the revised estimated increase for CY 2010. Improved milk supply is expected to be partially offset by more subdued export demand and this is expected to see production increases in the region of three percent. Source: ABARES Data Exports of SMP in CY 2011 are expected to increase around three percent in line with increases in production. Larger export volumes are expected to be constrained by the record high value of the Australian dollar at time of writing this report. Exports for CY 2010 have been revised upwards. Statistical Tables Dairy, Milk, Flu 2009 2010 2011 id 2009 A Market Year Begin: Jan Market Year Begin: Jan 2010 Market Year Begin: Jan 2011 ustralia USDA Official New Post USDA Official New Post USDA Official New Post Cows In Milk 1,676 1,676 1,630 1,553 1,650 1,570 Cows Milk Production 9,326 9,326 9,400 9,327 9,700 9,600 Other Milk Production 0 0 0 0 0 0 Total Production 9,326 9,326 9,400 9,327 9,700 9,600 Other Imports 7 7 10 11 11 12 Total Imports 7 7 10 11 11 12 Total Supply 9,333 9,333 9,410 9,338 9,711 9,612 Other Exports 74 71 76 76 78 78 Total Exports 74 71 76 76 78 78 Fluid Use Dom. Consum. 2,272 2,272 2,300 2,284 2,350 2,300 Factory Use Consum. 6,987 6,990 7,034 6,978 7,283 7,234 Feed Use Dom. Consum. 0 0 0 0 0 0 Total Dom. Consumption 9,259 9,262 9,334 9,262 9,633 9,534 Total Distribution 9,333 9,333 9,410 9,338 9,711 9,612 1000 HEAD, 1000 MT D 2009 2010 2011 airy, Cheese A Market Year Begin: Jan 2009 Market Year Begin: Jan 2010 Market Year Begin: Jan 2011 ustralia USDA Official New Post USDA Official New Post USDA Official New Post Beginning Stocks 15 15 19 19 31 23 Production 321 321 335 319 345 328 Other Imports 65 65 67 75 65 75 Total Imports 65 65 67 75 65 75 Total Supply 401 401 421 413 441 426 Other Exports 162 162 165 165 180 170 Total Exports 162 162 165 165 180 170 Human Dom. Consumption 220 220 225 225 230 230 Other Use, Losses 0 0 0 0 0 0 Total Dom. Consumption 220 220 225 225 230 230 Total Use 382 382 390 390 410 400 Ending Stocks 19 19 31 23 31 26 Total Distribution 401 401 421 413 441 426 1000 MT D 2009 2010 2011 airy, Butter A Market Year Begin: Jan 2009 Market Year Begin: Jan 2010 Market Year Begin: Jan 2011 ustralia USDA Official New Post USDA Official New Post USDA Official New Post Beginning Stocks 13 13 6 6 8 9 Production 118 118 110 108 113 111 Other Imports 18 18 19 19 20 19 Total Imports 18 18 19 19 20 19 Total Supply 149 149 135 133 141 139 Other Exports 83 83 66 63 72 66 Total Exports 83 83 66 63 72 66 Domestic Consumption 60 60 61 61 62 63 Total Use 143 143 127 124 134 129 Ending Stocks 6 6 8 9 7 10 Total Distribution 149 149 135 133 141 139 1000 MT 2009 2010 2011 Dairy, Dry Whole Milk Powder Australia Market Year Begin: Jan 2009 Market Year Begin: Jan 2010 Market Year Begin: Jan 2011 USDA Official New Post USDA Official New Post USDA Official New Post Beginning Stocks 40 40 31 31 27 27 Production 137 137 120 147 130 150 Other Imports 15 15 15 15 15 15 Total Imports 15 15 15 15 15 15 Total Supply 192 192 166 193 172 192 Other Exports 133 133 110 137 120 140 Total Exports 133 133 110 137 120 140 Human Dom. Consumption 28 28 29 29 30 30 Other Use, Losses 0 0 0 0 0 0 Total Dom. Consumption 28 28 29 29 30 30 Total Use 161 161 139 166 150 170 Ending Stocks 31 31 27 27 22 22 Total Distribution 192 192 166 193 172 192 1000 MT D 2009 2010 2011 airy, Milk, Nonfat Dry A Market Year Begin: Jan 2009 Market Year Begin: Jan 2010 Market Year Begin: Jan 2011 ustralia USDA Official New Post USDA Official New Post USDA Official New Post Beginning Stocks 42 42 32 32 60 48 Production 203 203 200 222 206 230 Other Imports 4 4 4 5 4 6 Total Imports 4 4 4 5 4 6 Total Supply 249 249 236 259 270 284 Other Exports 167 167 125 160 160 165 Total Exports 167 167 125 160 160 165 Human Dom. Consumption 50 50 51 51 52 52 Other Use, Losses 0 0 0 0 0 0 Total Dom. Consumption 50 50 51 51 52 52 Total Use 217 217 176 211 212 217 Ending Stocks 32 32 60 48 58 67 Total Distribution 249 249 236 259 270 284 1000 MT Recent Reports from FAS/Canberra The reports listed below can all be downloaded from the FAS website at: http://www.fas.usda.gov/scriptsw/AttacheRep/default.asp. Title of Report Date Testing of Food from Japan - Update 04/14/11 Sugar Annual 2011 04/13/11 Additional Testing Required for Japanese Food Products 04/08/11 Cotton and Products Annual 04/04/11 Grain and Feed Annual 2011 03/29/11 Livestock and Products Semi-annual 2011 03/18/11 Wine Annual 2011 03/10/11 Public Attitudes Towards Agricultural Biotechnology in Australia 03/08/11 Review of Food Labeling & Policy 02/24/11 Grain & Feed Lock-Up ? February 2011 02/01/11 Citrus Annual 2010 12/15/10 Ag DownUnder - Issue 7 2010 12/10/10 Winter crop harvest under way as rain continues in eastern Australia 11/30/10 Australia Moves toward Phasing Out the Use of Sow Gestation Stalls 11/24/10 Dairy and Products Annual 2010 11/23/10 Grain and Feed Lock-Up ? November 2010 10/28/10 Ag DownUnder ? Issue 6 2010 10/15/10 Sugar Semi Annual 2010 09/29/10 Livestock and Products Annual 09/01/10
Posted: 28 May 2011, last updated 30 May 2011

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