Dairy production on the up
AFTER one of the toughest seasons in years, the national dairy industry is recovering, according to the latest Dairy Situation and Outlook report.
The report from Dairy Australia says despite the price volatility that hit the 2016-2017 season, farmers in export-focused states such as Tasmania have coped fairly well.
DA senior analyst John Droppert said the report reflected the reality of the ups and downs of the industry over the past 12 months.
“2016-2017 was undoubtedly a tough season for cash flow, but the ability of farmers to adapt, together with generally lower hay and grain costs and better weather conditions, has helped many to generate a more positive financial result than they may have anticipated,” he said.
In Tasmania good seasonal conditions and improved priprice ces have seen milk production during 2016-2017 fall less than in other parts of the country.
The report says that with good seasonal conditions this year and better returns, overall production should improve.
In the domestic market butter sales have been a standout.
During 2016-2017 butter sales volumes increased by 1.9 per cent while major price rises saw the value of sales jump by 12.2 per cent to $242 million.
The value of cheese sales also grew by 3 per cent.
Results from the Dairy Farm Monitoring Project show similar, or slightly improved, earnings before interest and tax compared to the previous 12 months.
Mr Droppert noted that while EBIT results were better than the previous season, many farm businesses would be using any surplus cash for debt reduction or expenses incurred from last season.
Despite the lowest milk received in the history of the project, 89 per cent of farmers recorded a positive return on assets as good conditions reduced feed costs, helping offset low prices.
The report found 89 per cent of surveyed farmers were optimistic for the 2017-2018 season, with the majority predicting an improvement in farm business returns.
The report highlights an upward swing in national production but notes seasonal and price challenges facing the domestic-focused Western Australia, Queensland and NSW.
Dairy Australia senior analyst John Droppert said that while the overall market did appear to be improving, challenges remained for suppliers in the domestic market.
“Many farmers in domesticfocused regions have seen milk prices ease over the past season,” he said.
“Coupled with the extreme weather events in parts of Western Australia, Queensland and NSW, this has squeezed margins and impacted farm profitability.”
In the broader context dairy market settings remain sup- portive of a gradual recovery. International commodity prices are reflecting a relatively balanced supply and demand situation, changing little over the past few months.
Butter prices are near record levels, while skim milk powder values remain suppressed by large volumes held in European storage.
Prices for most other products remain somewhere closer to average.
Based on a combination of contained input costs and the modest improvements seen in farmgate milk prices, Mr Droppert expected growth in milk volumes in the southern dairying regions.
“Dairy Australia’s forecast for 2017-2018 milk production remains a growth range of between 2 and 3 per cent on the 2016-2017 total of 9.02 billion litres,” Mr Droppert said.
“This implies a forecast total of around 9.2 billion litres for 2017-2018.”