Australian dairy exports increase despite China’s milk demand drop
The Australian export sector experienced a solid performance in the 2023-2024 season, exporting a total of 705,000 tonnes of dairy products. This represents a 1% increase compared to the previous year.
According to Rabobank’s Australia agribusiness monthly report, cheese export volumes remained buoyant, along with trade in skim milk powder (SMP) and butter. However, the demand for liquid milk in China has softened, resulting in a notable 24% drop in Australia’s liquid milk exports. Despite the higher volumes of dairy products exported, the overall value of trade decreased to AUS$3.6 billion (US$2.37 billion), reflecting a 1.9% decline year-on-year.
Milk production and dairy demand
Looking ahead at global developments, all eyes are on the European Union, particularly regarding milk production. Senior analyst for Dairy and Consumer Foods at Rabobank, Michael Harvey, notes that a bluetongue outbreak is introducing uncertainty regarding potential milk production losses, while lingering weather risks could further impact milk volumes.
Harvey also points out that many economies worldwide are experiencing sluggish performance in foodservice channels, as consumers grapple with rising cost-of-living pressures. This situation could ultimately have a negative effect on dairy demand for products such as cheese.
Prices in the Global Dairy Trade auction saw a minor decline of 0.3% on 15 October, following recent increases of 1.2% and 0.8% in the previous 2 auctions. This overall decrease indicates a slight pullback after a period of upward movement in the market.
Dairy prices
Notably, whole milk powder prices remained steady at an average of US$3,553 per mt. In contrast, skim milk powder experienced a decline of 1.8%, settling at US$2,754 per tonne. On a more positive note, cheddar cheese recorded the most significant increase, rising by 4.2% to an average of US$4,702 per mt. Additionally, anhydrous milk fat saw a modest gain of 0.3%, reaching an average of US$7,229 per mt.
Fonterra’s revised strategy
In other dairy news, NZ dairy giant Fonterra has unveiled a revised strategy aimed at enhancing value for its farmer shareholders and unit holders, with a particular focus on the ingredients and foodservice sectors. This strategic shift comes after the co-op conducted a comprehensive review in May, which reaffirmed its strengths as a B2B dairy nutrition provider.
As a result, Fonterra is exploring divestment options for its global consumer businesses, including Fonterra Oceania. Chairman Peter McBride articulated that this new strategy will pave the way for greater value creation, allowing the co-op to announce enhanced financial targets and policy settings. He emphasised, “The co-op exists to provide stability and manage risk on farmers’ behalf while maximising the returns to farmers from their milk and the capital they have invested in Fonterra.”
Largest processing site in Australia
In Australia, Pure Dairy is in the process of constructing a new processing facility in Dandenong South, with an estimated investment of AUS$100 million (US$66 million). This facility is poised to become one of the largest processing sites of its kind in the country when it opens next year, and it is expected to create over 100 jobs for the local community.
Pure Dairy has also confirmed that this ambitious project has received backing from Great Lakes Cheese, a leading cheese packager in the US. This marks the first time the American dairy giant has established a presence in Australia.
In the US, a new report from CoBank indicates that an opportunity has emerged for dairy farmers to consider locking in positive margins based on futures contracts. The report suggests that overall, 2024 is likely to be one of the top 3 years for milk prices. Additionally, grain prices have been steadily decreasing this summer, reaching a 5-year low, which presents a favourable situation for livestock producers.
Milk supplies
The positive movement in milk prices has primarily been driven by tighter supplies rather than an increase in dairy demand. Milk supplies have tightened among the leading dairy exporters – New Zealand, the EU, and the US – with projections indicating a potential decline in milk production for 2 consecutive years.
If this trend continues, it would represent the first time in over 50 years that milk production has decreased for back-to-back years. This ongoing situation underscores the complexities and challenges faced by the dairy industry in a fluctuating market environment.
