During the year, farmers in the region produced 1.9 billion litres of year, down 3.6 per cent from the year prior.

Much of this decline occurred during the first half of the season, whilst favourable weather, easing input costs and a second year with a relatively high farmgate milk price supported a production response in 2020.

In the first three months of 2020/21 milk production in the region has grown 2.8 per cent, compared to the same time last year.

Dairy Australia’s October Dairy Situation and Outlook report discusses how improved conditions at the farmgate, in both western Victoria and many other regions, bode well for the season and have contributed to growing optimism for the industry.

At the same time, the COVID-19 pandemic continues to create market challenges by depressing global economic growth and disrupting demand for dairy in overseas markets and in Australia.

With most countries now in a recession, global demand for dairy may come under pressure, especially in price-sensitive markets.

With favourable weather forecasts for the balance of the year, milk production is expected to continue to recover in South West Victoria.

This is happening at a time when global supply is growing, which poses risks for the dairy market balance for the months ahead.

While seasonal conditions are excellent, many farmers are aware of these more distant threats, in addition to facing continued challenges such as labour availability.

Given already-announced 2019/20 minimum milk prices, the shift in market fundamentals is not expected to undermine farmer returns in the current season, but it may cap further upside potential.

With favourable weather forecasts for the balance of the year, milk production is expected to continue to recover in South West Victoria.

However, despite strong business profit expectations, a number of farm exits and lower herd sizes in the region continue to pose constraints for the season ahead.

Growth expectations have become more muted in recent months, and will be explored in more detail in the upcoming Dairy Situation and Outlook report.

This will be available to download from Dairy Australia’s website from December 9. 2020.

Sofia Omstedt is a senior industry analyst at Dairy Australia.