Australian milk production is forecast to grow this season following a big turnaround in the latter part of last season.
Dairy Australia figures released last week for season 2020-21 reveal production was down just 0.2 per cent, defying earlier forecasts of a 3-5pc fall.
The revival was led by Gippsland, where production was up 8.6pc, and Tasmania, up 4.4pc.
Victoria finished the year up 0.8pc with the big growth in Gippsland offset by a 3.6pc decline in western Victoria and a 2.2pc decline in northern Victoria.
All states, except Queensland, recorded higher milk production in June.
Gippsland again led the way in June, up 13pc.
South Australia, up 9.7pc, and Western Australia, up 6.7pc, were also strong performers.
Most regions recorded only modest falls for the whole season - with SA down 2.7pc, WA down 2.7pc and NSW down 3.6pc.
Milk production in Queensland continues to spiral with it finishing the season down 12.9pc, cementing its position as Australia's smallest dairy state.
Pundits put the turnaround down to markedly improved seasonal conditions, as many regions climbed their way out of drought, combined with reasonable milk prices.
They are forecasting the turnaround to continue in season 2020-21, as confidence slowly rebuilds in the industry.
But they warn uncertainty around markets in light of the ongoing COVID-19 crisis could be a dampener on growth.
Forecasts not realised
Dairy Australia industry insights and analysis manager John Droppert said its milk production forecasts in October last year were grim and did not improve in December with the bushfires hitting dairy regions and forecasts that fodder supplies would be depleted by March.
"What eventuated, of course, was that we saw a really significant turnaround from February onwards and particularly from March onwards," he said.
"The milk price was reasonable in historical terms the whole way through but it was really a seasonal turnaround that made the difference."
Rabobank dairy senior analyst Michael Harvey said it was a great result for the industry.
"It was really a tale of two halves," he said.
"The first six months weren't great and then really from December things started to improve."
The improvement started in the southern export market milk pool - Victoria, southern NSW and Tasmania - and a good finish to summer and a good autumn break saw recovery in other milk pools.
Promising outlook
Mr Harvey said things were starting to line up nicely for season 2020-21.
The rainfall outlook looked favourable, feed costs were drifting lower, fertiliser was quite affordable, interest rates were low and the water market was heading in the right direction.
"The key one for us is the milk price environment," he said.
"It is one that is better than we expected and that is a great result because we were cautious about the global market."
Milk pricing under the new dairy mandatory code of conduct was above expectations and meant the risk of any fall on global markets now sat with the exporters.
Rabobank is forecasting milk production to grow 2.8pc in 2020-21.
Mr Droppert said DA was forecasting growth of about 3pc - which was conservative by some standards.
Herd sizes would put a lid on some growth.
"I think part of the growth we saw, while the culling slowed down and the herd stabilised ... was a decent amount of per cow production," he said.
"This is obviously harder to push on again in the next year, so you hit a limit with herd sizes."
The latest figures from DA show that August culls are at their lowest level for the past five years.
Culls were down 46pc in August compared with the previous year, while the 2020-21 season-to-date culls are down 34pc.
Confidence rebuilding
Mr Droppert said farmer confidence was in a reasonable place.
Mr Harvey said the latest Rabobank survey revealed stability in confidence levels among dairy farmers, which had been needed for the industry because it had been on a rollercoaster for the past couple of years.
"There are those early signs of farmers looking to invest in the coming year," he said.
"There is an uptick in farmers looking to expand or grow their business."
Coronavirus warning
But both warned that there were coronavirus clouds on the horizon.
"The caution is what happens with COVID," Mr Droppert said.
"So far the dairy industry has come out of that reasonably well, and the mandatory code will, of course, provide some back stop to milk prices for the current season."
But the broader economic damage would reverberate in the dairy industry.
Consumers would move back to lower cost products as the economy tightened.
"One of the things we are seeing in the short term is consumers moving back to block cheese rather than prepackaged sliced cheese," he said.
Retailer strategies might also change as they met these changed consumer expectations.
"Their strategies coming out of the GFC (Global Financial Crisis) ... led to some of the controversy around retail prices that they are just coming out of," Mr Droppert said.
Mr Harvey said the domestic business had been a good safety net for processors during the COVID-19 crisis.
The lift in retail sales had been beneficial although food service industry sales had been hit.
But the export component was more uncertain.
Commodity prices were drifting lower and the Australian dollar was higher against the US dollar.
"So it is not the right mix that exporters want to see when your hitting your spring peak," he said.
Want to read more stories like this?
Sign up below to receive our e-newsletter delivered fresh to your email in-box twice a week.