Dairy and Products Semi-annual 2012

An Expert's View about Dairy Products in Australia

Posted on: 20 May 2012

Despite the recent sharp improvement in production conditions, the rebound in dairy production in Australia has been sluggish.

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: 5/14/2012 GAIN Report Number: AS1209 Australia Dairy and Products Semi-annual 2012 Approved By: Joseph Carroll, Agricultural Counselor Prepared By: Mike Darby, Agricultural Specialist Report Highlights: Two consecutive years of record rainfall in eastern Australia have sharply improved pasture conditions and fully replenished supplies of irrigation water for the Australian dairy industry. Despite the recent sharp improvement in production conditions, the rebound in dairy production in Australia has been sluggish. The production of fluid milk in CY 2012 is expected to increase just three percent year-on-year following a smaller increase for CY 2011. On the positive side, cow numbers have begun to increase as-well-as milk yield per cow and this is likely to continue well beyond the forecast period. The trade remains “cautiously optimistic” over the longer-term as the Australian dairy industry makes “modest” improvements in production and productivity. Summary: Two consecutive years of record rainfall in eastern Australia have sharply improved pasture conditions and fully replenished supplies of irrigation water for the Australian dairy industry. Back- to-back record production levels for wheat and cotton have also sharply increased the supplies of both grain and other commodity bi-products (such as cotton seed meal) for use as dairy fodder. High rainfall, improved pasture conditions and sharp increases in fodder availability have followed the worst drought in recorded history. The drought, which began in CY 2002 and continued until Christmas day 2009, depleted fodder and irrigation water reserves to their lowest levels in living memory. As a consequence, the Australian dairy sector witnessed a decline in cattle numbers and milk yield per cow during this period. Despite the recent sharp improvement in production conditions, the rebound in dairy production in Australia has been sluggish. The production of fluid milk in CY 2012 is expected to increase just three percent year-on-year following a smaller increase for CY 2011. These are but modest increases when the transition from the worst conditions on record to some of the best conditions on record is taken into account. Despite greatly improved climatic conditions, the Australian Dairy Industry continues to be constrained by high relative costs for other farm inputs such as labor. Conversely, the historically high Australian dollar, which has been climbing steadily since CY 2008 and recently reached new record levels, continues to constrain exports and limit farm gate prices for fluid Milk. Source: Dairy Australia data On the positive side, cow numbers have begun to increase as-well-as milk yield per cow and this is likely to continue well beyond the forecast period. The trade remains “cautiously optimistic” over the longer-term as the Australian dairy industry makes “modest” improvements in production and productivity. The production and export series for some commodities have also been significantly revised, in line with recently received industry data. In response to the high Australian dollar the export series of key dairy commodities have been revised downwards and closing stocks adjusted upwards in line with industry gathered raw data. Official stock numbers are unavailable, however, anecdotal evidence suggests that stocks of dairy commodities have increased due to the high value of the Australian dollar and the subsequent constraints on export performance. Rainfall and Flooding in Eastern Australia Eastern Australia has been experiencing “La Nina” weather conditions over the past two years and this has bought widespread heavy rainfall and in the worst affected areas severe flooding. Many records have been surpassed during this period – including the wettest seven day period on record. For the most intensively farmed agricultural regions of eastern Australia, this flooding event is regarded as similar to that of the early 1970’s and the 1950’s. However, this event has been even more severe for other less well known areas of inland Australia. Source: Australian Bureau of Meterology Data Heavy rains and flooding have completely replenished previously depleted irrigation water storage dams. During nearly eight years of drought irrigation water availability steadily declined reaching zero for many irrigated farms. The chart below shows the dramatic improvement in irrigation water storage since the drought began to break at the end of CY 2009. This improvement is likely to see production of irrigated crops return to levels more reflective of the longer term average. Source: Murray Darling Basin Authority Data Commodities: Dairy, Milk, Fluid Dairy, Cheese Dairy, Butter Dairy, Dry Whole Milk Powder Dairy, Milk, Nonfat Dry Production, Supply and Demand Data Statistics Dairy, Milk, Fluid 2010 2011 2012 Market Year Begin: Market Year Begin: Market Year Begin: Australia Jan 2010 Jan 2011 Jan 2012 USDA Official New Post USDA Official New Post USDA Official New Post Cows In Milk 1,596 1,596 1,610 1,620 1,625 1,650 Cows Milk Production 9,327 9,327 9,550 9,562 9,750 9,850 Other Milk Production 0 0 0 0 0 0 Total Production 9,327 9,327 9,550 9,562 9,750 9,850 Other Imports 11 11 12 9 11 8 Total Imports 11 11 12 9 11 8 Total Supply 9,338 9,338 9,562 9,571 9,761 9,858 Other Exports 71 74 74 79 75 92 Total Exports 71 74 74 79 75 92 Fluid Use Dom. Consum. 2,284 2,284 2,320 2,347 2,350 2,350 Factory Use Consum. 6,983 6,980 7,168 7,145 7,336 7,416 Feed Use Dom. Consum. 0 0 0 0 0 0 Total Dom. Consumption 9,267 9,264 9,488 9,492 9,686 9,766 Total Distribution 9,338 9,338 9,562 9,571 9,761 9,858 1000 HEAD, 1000 MT Dairy, Cheese 2010 2011 2012 Market Year Begin: Jan 2010 Market Year Begin: Jan 2011 Market Year Begin: Jan 2012 Australia USDA Official New Post USDA Official New Post USDA Official New Post Beginning Stocks 19 19 23 29 24 36 Production 319 319 325 332 332 345 Other Imports 75 76 76 72 75 70 Total Imports 75 76 76 72 75 70 Total Supply 413 414 424 433 431 451 Other Exports 165 160 170 167 174 174 Total Exports 165 160 170 167 174 174 Human Dom. Consumption 225 225 230 230 235 235 Other Use, Losses 0 0 0 0 0 0 Total Dom. Consumption 225 225 230 230 235 235 Total Use 390 385 400 397 409 409 Ending Stocks 23 29 24 36 22 42 Total Distribution 413 414 424 433 431 451 1000 MT Da Butter 0 iry, 201 2011 2012 M e arket Year Begin: Market Year B gin: Market Year Begin: DAauisrtyr,a Dliray Jan 2010 Jan 2011 Jan 2012 Whole Milk USDA Official New Post 2010U SDA Official New Post 2011U S DA Official New Post 2 012 Powder Beginning Stocks 6 M 6 9 17 7 39 arket Year Begin: Market Year Begin: Market Year Begin: Production 108 132 105 127 107 129 Jan 2010 an 2011 Jan 2012 Other ImportsA ustralia 19 US 19 18 18 17 18 DA New USDA New USDA New Total Imports 19 O 19 18 18 17 18 fficial Post Official Post Official Post TBoetgal Supply 133 157 132 162 131 186 inning Stocks 31 31 27 40 23 49 OPrtohdeur Exports 63 63 63 45 65 65 ction 147 147 151 148 154 154 TOotal Exports 63 63 63 45 65 65 ther Imports 15 15 16 19 15 20 DToomestic Consumption 61 77 62 78 63 79 tal Imports 15 15 16 19 15 20 TTootal Use 124 140 125 123 128 144 tal Supply 193 193 194 207 192 223 EOnding Stocks 9 17 7 39 3 42 ther Exports 137 108 141 111 144 116 TTootal Distribution 133 157 132 162 131 186 tal Exports 137 108 141 111 144 116 H uman Dom. Consumption 29 45 30 47 31 49 1O000 MT ther Use, Losses 0 0 0 0 0 0 Total Dom. Consumption 29 45 30 47 31 49 Total Use 166 153 171 158 175 165 Ending Stocks 27 40 23 49 17 58 Total Distribution 193 193 194 207 192 223 1000 MT Dairy, Milk, Nonfat Dry 2010 2011 2012 Market Year Begin: Market Year Begin: Market Year Begin: Australia Jan 2010 Jan 2011 Jan 2012 USDA Official New Post USDA Official New Post USDA Official New Post Beginning Stocks 32 32 48 51 56 82 Production 222 222 230 241 235 240 Other Imports 5 5 5 5 4 4 Total Imports 5 5 5 5 4 4 Total Supply 259 259 283 297 295 326 Other Exports 160 141 175 147 185 160 Total Exports 160 141 175 147 185 160 Human Dom. Consumption 51 67 52 68 53 69 Other Use, Losses 0 0 0 0 0 0 Total Dom. Consumption 51 67 52 68 53 69 Total Use 211 208 227 215 238 229 Ending Stocks 48 51 56 82 57 97 Total Distribution 259 259 283 297 295 326 1000 MT Dairy Cow Numbers Total cows in milk are forecast at 1.65 million head, up 1.85 percent from the previous year in response to sharply improved pasture conditions and fodder supply. Record breaking rainfall combined with a significant decline in domestic feed grain prices allowed cow numbers to expand slightly beyond those in Post’s previous report. Despite this, total cow numbers continue to remain well below those recorded prior to the record breaking drought and further increases in herd numbers are expected to be modest. Source: ABARES Data Recent improvements in farm gate milk prices have also assisted in the expansion of the herd and restored some confidence in the long term outlook of the industry. However, further increases in farm gate prices will likely be constrained (at least partially) by the historically high and at times record value of the Australian dollar. Source: ABARES Data Dairy, Milk, Fluid Production Total fluid milk production for CY 2012 is forecast at 9.85 MMT, up 3 percent from last year’s estimated level of production. A second season of record breaking rainfall and flooding has seen total number of cows and average yield per cow increase and this has led to the slight upward revision in the milk production forecast. Of particular interest is the significant decline in local feed grain prices toward the end of 2011. Record wheat production, as well as other crops, combined with difficult harvesting conditions (due to wet weather at harvest) sharply increased domestic supplies of downgraded wheat for use as feed grain – subsequently, costs of purchased feed grain have fallen significantly leading into CY 2012. This has done much to “sure-up” dairy production volumes in CY 2012. Source: Dairy Australia data Fluid milk production for CY 2011 has also been revised upwards slightly and is estimated at 9.56 MMT, due to increased cow numbers and increased yield. Source: ABARES Data Dairy, Cheese Total cheese production in 2012 is forecast at 345 TMT, up about 4 percent from the 2011 estimated level of production. This figure is driven by the increase in fluid milk available for manufacturing and firmer pricing compared with other dairy commodities. Long term trends show fluid milk consumption remaining relatively flat (with only small and incremental year-to-year increases in demand) therefore the majority of growth in total fluid milk production will have to be directed towards manufacturing. Source: ABARES Data Total cheese production CY 2011 has been revised upwards to 332 TMT, in line with increases indicated by industry data. Higher returns for cheese over the past decade have allowed cheese production to remain relatively stable despite earlier falls in fluid milk supply. Source: ABARES Data Dairy, Butter Total butter production for CY 2012 is forecast at 129 TMT, up slightly on the revised estimate of 127 TMT for the previous year. An increase in fluid milk supply is expected to see butter production rise slightly despite the long term declining trend in production. Long term trends in consumer consumption patterns have seen butter production trending downwards. Source: ABARES Data Total butter exports for CY 2012 are forecast at 65 TMT, up sharply from the revised estimate for the previous year. Increasing closing stocks, due to poorer export performance estimated in CY 2011 is expected to push 2012 exports upwards, closer to the long-term-average. The production and export series for butter has been revised, in line with recently received industry data. Dairy, Dry Whole Milk Powder Production of whole milk powder in 2012 is forecast at 154 TMT, up about 4 percent from last year and in-line with the increase in fluid milk supply. WMP prices are expected to decline slightly going forward and this is expected to constrain production and export volumes. Production for CY 2011 has been revised downwards slightly to 148 TMT in line with recently released industry data. Source: ABARES Data Exports in 2012 are forecast at 116 TMT. The high value of the Australian dollar has caused a downward revision of exports across the series, while revising stocks upwards. This revision is supported by industry data. Dairy, Skim Milk Powder (SMP) Total skim milk powder production for CY 2012 is forecast at 240 TMT, largely unchanged from the previous year. However, exports have been increased significantly for CY 2012 to 160 TMT. Domestic consumption and closing stock numbers have been increased across the series due to lower than expected export performance driven by a historically high, and at times record value of the Australian dollar. Source: ABARES Data Recent Reports from FAS/Canberra The reports listed below can all be downloaded from the FAS website at: http://gain.fas.usda.gov/Lists/Advanced%20Search/AllItems.aspx. Title of Report Date Sugar Annual 2012 04/10/12 Cotton and Products Annual 2012 03/29/12 Grain and Feed Annual 2012 03/20/12 Wine Annual 2012 03/15/12 Livestock and Product Semi-annual 2012 03/13/12 Grain & Feed Lock-Up – February 2012 01/24/12 Citrus Annual 2011 12/07/11 Grain and Feed Update – November 2011 11/01/11 Dairy Annual 2011 10/14/11
Posted: 20 May 2012

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