Australian milk supply could drop 7 per cent

Dairy Australia is warning of falling milk supply. Photo / 123RF

Dairy Australia is predicting Australian milk supply could plummet by as much as 7% this season in a "worst case scenario".

If that eventuated, it would bring the national milk pool to a two-decade low of 8.6 billion litres and lead to extensive pressure across local supply chains, Rabobank's latest Agribusiness Monthly said.

That was in stark contrast to production conditions in New Zealand, where milk collections continued to pour in, leading to national supply climbing almost 6% for the first four months of the 2018-19 season to September 2018.

With weather conditions and pasture growth largely favourable in October, milk collections across the peak supply month were expected to remain elevated compared to the previous year.

International guidance suggested a 88% chance of El Nino conditions developing for the tropical Pacific over the coming months to January.

International modelling also suggested El Nino conditions might continue through to autumn 2019, while NIWA noted some long-range models suggested such conditions might linger through to winter next year.

Oceania commodity prices were mixed in October; the general theme of plentiful production in New Zealand continued to underpin pricing pressure on whole milk powder, while butter and skim milk powder prices moved fractionally upwards.

RaboResearch expected further upside in commodity prices to occur through 2019, helped by steady demand and tighter global milk supplies.

Meanwhile, farmgate beef prices continued to fall in Otago, as the number of cattle coming forward for slaughter gained momentum against the backdrop of weak US imported beef prices.

With the new season kill now well under way, increasing supplies were putting downward pressure on prices as processors looked to regain some margin, the report said.In the longer term, Rabobank expected total beef production for 2018-19 to be slightly down on last season (-3%), ensuring a certain amount of procurement pressure was likely to remain present in the market throughout the season.

While demand from the US for New Zealand's lean grinding beef products remained weak, there were signs that demand was starting to improve. China's demand outlook remained positive and buyers were currently actively seeking product.