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ABARES outlook: dairy

Higher world prices are expected to boost Australian farmgate milk prices by 2 per cent in 2013–14 to average 39.4 cents a litre. But the relatively strong Australian dollar is expected to maintain downward pressure on returns to local dairy exporters. ABARES’ latest predictions for the dairy sector, released at this week’s Outlook conference in Canberra, won’t do much to change the current sour mood among milk producers across the nation. It forecast farmgate prices would fall slightly over the next five years to reach 36c a litre (in 2012–13 dollars) in 2017–18, which would reflect reflecting lower world dairy prices toward the end of the projection period. Australian milk production was forecast to increase by 1.3 per cent to 9.62 billion litres in 2013–14. The higher production in 2013–14 would follow further expansion in dairy herds in Victoria, southern NSW and Tasmania. Milk production in northern Victoria and southern NSW increased by 17pc and 6pc, respectively, in 2011–12 following a significant improvement in the availability of irrigation water in the Murray–Darling Basin. Milk production in northern Victoria and southern NSW was estimated to rise by a further 7pc and 3pc, respectively, in 2012–13. Tasmanian milk production increased by nine per cent in 2011–12 and was estimated by ABARES to rise slightly in 2012–13. Production in dairying regions more reliant on the drinking milk market – Queensland, South Australia, Western Australia and central and northern NSW – was forecast to decline by around 2-4pc in 2012–13. Over the medium term Australian milk production was projected to increase to around 9.9 billion litres with most of the increase expected in the first half of the projection period. The predicted rise in Australian milk production would continue to be driven by further gains in milk yields. While the number of dairy cows in Australia increased by 2.6pc year-on-year to 1.63 million head as at June 30, 2012, the rate of increase was expected to moderate over the next few years. The national dairy herd was projected to rise by 1.3pc to 1.65 million head by 2014–15 and then decline slightly in response to lower farmgate milk prices in real dollar values. While milk production and cow numbers expanded in the main dairying regions of the Murray–Darling Basin in the past two years, the prospect of further significant gains in production in these areas was likely to be constrained by the profitability of dairying relative to other agricultural enterprises and the competing demands by these activities for irrigation water, ABARES said. The total value of Australian dairy exports was forecast to decline by 2pc in 2012–13 to $2.2 billion. In 2013–14, export dairy earnings were forecast to rise by two per cent to around $2.3 billion. Over the medium term earnings from dairy exports were projected to remain at around $2.2 billion (in 2012–13 dollars) a year, before easing gradually toward the end of the projection period in 2017-18. In 2013–14 world dairy product prices were forecast to rise, driven by increased demand in the developing countries of Asia and the Middle East and North Africa and limited growth in supplies from key exporting countries.

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