Oceania Dairy Market Overview

     Oceania Dairy Market Overview

     Report 41 - Released on October 11, 2018


      Dairy producers are struggling in Australia. Dry conditions have persisted in a number of
     high milk producing regions. This has already led to more herd culling than had been
     expected. Seasonal milk production lags last season by 3.4 percent through August. Milkfat
     and protein content are also lower. More information is presented on the table below.

                             Australia Milk Production, Milkfat and Protein
                             July-August 2018             July-August 2018
                            Million  % Change          Milkfat      Protein
                            Liters   From 1 Year Ago   Percentage   Percentage
     New South Wales         187.7       -5.1             3.80        3.33
     Victoria                887.9       -4.5             3.86        3.45
     Queensland               69.1       -5.6             4.01        3.32
     South Australia          80.2       +9.1             3.74        3.35
     Western Australia        63.3       +0.7             3.72        3.35
     Tasmania                 67.0       +2.5             4.30        3.54
     Australia (Total)     1,355.2       -3.4             3.87*       3.42**

     *  -2.2 percent from prior year period
     ** -0.6 percent from prior year period

     Data from Dairy Australia

      Sources note that typical annual culling involved about 20 percent of herd sizes. This year
     25 percent is believed likely. Lingering drought as well as resulting higher prices for feed
     are diminishing returns for dairy producers. Without widespread rain in October, more
     producers are believed likely to make further herd reductions to be able to move ahead and
     afford the higher prices for feed. Some producers are also pushing against water
     availability and realize they can�t maintain more cows than they can properly provide water

      Even areas not directly suffering from the drought are affected by higher feed prices.
     Thus, more culling than had been expected is also occurring in areas with adequate water.
     Higher feed prices, related to drought, have spread throughout Australia. It is expected
     that formal milk production estimates for Australia will be revised downward in coming
     weeks, barring substantial October rain. At some point there is a tipping where the culling
     is so extensive that effects will transcend the current season. Rebuilding is not instant so
     when conditions finally become more optimal, there will be a lag in bringing cow numbers
     back and hence, a lag in milk production volumes.


      New Zealand continues to benefit from nearly ideal conditions for milk production. Seasonal
     production recently reported through August was well ahead of expectations. On October 10
     (U.S. time) a large New Zealand dairy cooperative revised the forecast for seasonal milk up
     an additional 1.3 percent to 1,550 million KGMS. The impact of adjusted expected milk output
     up was to reduce the projected milk pay price from 6.75 Australian dollars per kgMS, to a
     range of 6.25-6.50 per kgMS. Other observers caution that through August in a typical year,
     only about 10 percent or slightly less of New Zealand seasonal milk has been produced. By
     that measure the season is still in the early stage.

      Of course, the lower projected prices are of concern to producers. In trade terms, the
     overall weakness in recent GDT events has moved prices lower for some dairy products. This
     is especially true for WMP, which is the most important New Zealand dairy product exported
     in terms of dollar value. The lower prices have led to more recent interest from buyers such
     as China, in contracting for future deliveries. The magnitude of possible sales is still
     uncertain, but if enough is committed, that could lead to helping prices moving forward.

     Information for the period October 1 - 12, 2018, issued biweekly

     Published by:
     Dairy Market News - Madison, WI
     Eric Graf, 608.422.8590
     Email: eric.graf@ams.usda.gov

     Additional Dairy Market News Information:
     Dairy Market News (DMN) by Phone: (608)422-8602
     DMN Website: http://www.ams.usda.gov/market-news/dairy
     DMN Database Portal: http://www.marketnews.usda.gov/mnp/da-home