According to ABARE's Australian Commodities 2008 June quarter report, farmgate milk prices are forecast to rise by 10 per cent to 54 cents a litre in 2008-09 after averaging around 49c/L in 2007-08.

Warrnambool Cheese and Butter chief executive officer Neil Kearney said international and domestic demand for all dairy ingredients meant the outlook for the 2008-09 season was positive.

"However, in export markets the Australian dollar is of concern and any more strengthening does lower our returns," he said.

WCB opened the season 15 per cent up on the same period as last year, which Mr Kearney says is a positive signal to suppliers about dairy demand across the world.

Despite the high domestic prices on offer, continuing low irrigation water allocations – particularly in the Murray-Darling Basin – and herd rebuilding will limit the ability of many Australian dairyfarmers to increase production in 2008-09.

South Australian Dairyfarmers Association chief executive officer Ken Lyons said SA was potentially looking at a third year of record low inflows into the Basin, making life very difficult for irrigators along the River Murray and the Lower Lakes.

Feed option lifts milk production

EXTRA funds Monteith dairyfarmer Ray Dohnt (pictured right with son Glenn) receives from his milk cheque this season will be invested back into their feed pad on-farm.

Last November, the Dohnts began feeding their cows through a feedpad after their 185 hectares of irrigated pasture ran low and summer dried it out. Ray said there was no other viable way of farming. "We didn't have an option other than to start setting up a feed pad," he said.

"This year, we have only started with a 2 per cent water allocation so we can't rely the River anymore." The Dohnts milk 500 cows, a number down from 550 last year due to the water crisis facing irrigators along the River Murray. But despite the destock, Ray said milk production has increased due to the feed pad.