SYDNEY, Sept 3 (Reuters) - Australian milk production is set to rise for the first time in two years and may top the country’s official estimate, as rains boost pasture and cattle feed prices drop.
Any increase would help processors looking to source milk to meet rocketing demand for dairy products in China and other Asian nations, although it would unlikely be large enough to stop them running well below capacity.
Analysts and industry sources said milk output during the 2014/15 season, which starts July 1, could well be stronger than the 2 percent rise to 9.3 billion litres predicted by the Australian Bureau of Agricultural, Resource Economics and Sciences.
“There is scope for growth above 2 percent,” said Michael Harvey, a senior analyst covering the dairy sector at Rabobank.
“While prices have come down, there is still good profitability for many farmers.”
Global milk prices fell 40 percent from a record-high hit in February according to Global Dairy Trade, as supply disruptions caused by adverse weather faded.
Australia is the world’s third-largest dairy exporter behind New Zealand and the European Union.
Plummeting feed prices, with the United States poised to harvest a record corn crop, have also boosted the short-term outlook for dairy farmers.
Industry body Dairy Australia sees milk output at 9.4 billion litres in 2014/15.
Major Australian dairy processors such as Murray Goulburn, Bega Cheese, Warrnambool Cheese & Butter and Fonterra have been looking to capitalise on strong Asian demand as an expanding middle class develops a taste for western food.
Dairy processors either sell the milk fresh or use supplies to produce products such as butter, cheese and baby formula.
But they have been struggling to source enough milk, with farmers reluctant to invest heavily in dairy herds due to fears of drought, especially after chunks of the country were ravaged by dry weather last year.
“There is appetite for expansion but that is tempered by caution,” said John Droppert, an industry analyst at Dairy Australia.
“Farmers have been burnt before, so they are keen to take a measured approach.” (Reporting by Colin Packham; Editing by Joseph Radford)