Tough times will test dairy industry

Tough times will test West Gippsland dairy farmers whose confidence levels have hit the low levels, according to the latest Dairy Australia Situation and Outlook Report.

Farmer surveys conducted in February and March had already revealed a downward spiral of confidence but the Situation and Outlook Report released last week confirmed confidence in the industry’s future had plummeted.

The GippsDairy regional profile showed sentiment about the future of the industry had dropped significantly with 16 per cent of farmers last year “very positive” but only half of that this year.

Dairy Australia senior analyst John Droppert said some “pretty ugly numbers” emerged in this year’s report.

“It was not surprising, even before the milk price challenges it was pretty tough. South and West Gippsland have been doing it tough.

“At $5.60 (per kilogram milk solids) it was workable but it didn’t give any room to move with costs. Confidence was already low.

Mr Droppert said the long term financial impact of the milk price drop would be huge.

“It will be different for every farm. It does fall more on younger farmers or those that don’t have as much equity.

“It will affect what risks you take and what investment you make,” he said.

Gippsland results indicated that while profitability was widespread in the 2014/15 financial year, it was likely to be less this year, resulting in less than half of Gippsland farmers investing in their farms over the next 12 months.

However, as a positive, Gippsland herds and production have continued to grow.

Mr Droppert admitted there were no real surprises in the figures of a supplementary survey conducted following Murray Goulburn and Fonterra’s milk price crash.

Farmgate milk prices and climate issues were blamed as the biggest negative drivers and challenges for farmers.

Mr Droppert said the short to medium term future looked particularly tough for farmers in this region.

Following a challenging, dry season, Mr Droppert said many farmers were staring down the barrel of significant financial losses.

Mr Droppert said the biggest influence on financial positions was the recent farm gate price cuts by some processors and expectations of a much lower opening price for 2016/17.

Dairy Australia’s initial national dairy farmer survey was conducted in February and March, the proportion of farmers feeling positive about the future of the industry dropped from 74 per cent last year to 67 per cent.

However, the supplementary survey suggested the number of farmers feeling positive about the industry had dropped below 50 per cent.

“The survey highlighted confidence in the future of the industry is lower across Victoria than it has been for the past few years.

“Since then, late season cuts to farmgate prices have caused a significant further decline in sentiment across most regions, which follow up research is currently attempting to quantify.”

Mr Droppert said overall, margins had been significantly tighter through 2015/16; squeezed by both higher costs and lower income.

“Although some easing of costs during the 2016/17 season is likely, a weak milk price outlook suggests that margin pressure will intensify – at least through the first half of the year,” he said.

Mr Droppert said Victorian dairy farmers were now more concerned about farm gate milk price than they had been for some time.

“In the survey’s 12-year history, the national trend in farmer sentiment showed a close relationship with farm gate prices. “Statistical analysis suggests that prices account for more than 80 per cent of the variability in farmer positivity about the future of the dairy industry,” he said.