Signs of recovery for dairy industry
Improved seasonal and market conditions are providing signs of recovery for West Gippsland’s dairy industry, according to Dairy Australia’s latest Situation and Outlook report.
The report, released last week, indicates modest growth in milk production, generally favourable seasonal conditions and contained input costs will assist dairy farmers to enter a recovery phase.
After two challenging seasons, Dairy Australia reported the dairy industry had entered a period of recovery.
While acknowledging circumstances vary from farm to farm, GippsDairy regional manager Allan Cameron said seasonal conditions were helping to boost confidence and provide hope for farmers.
Mr Cameron said Dairy Australia’s report of the recovery phase was a “fair reflection” of what Gippsland dairy farmers were experiencing.
But, he said, the recovery and financial position varied from farm to farm.
Mr Cameron said despite the significant milk price drop in the 2015/16 season, improved seasonal conditions for the 2016/17 helped many farmers to regroup.
“When the season doesn’t work in our favour it can have a greater impact than the milk price.
“Confidence levels last year dropped with milk prices but seasonal conditions allowed them to come out the other side.
“The current season has begun well following a milder winter and good start to spring.
He said the opening prices of most processors were above the cost of production so West Gippsland farmers were starting to feel confident about the season ahead.
“They are seeing indications that their final milk price will be stronger and that will make up for the previous two years.
Mr Cameron said the past two years had highlighted the importance of home grown feed rather than buying in grain and fodder.
“There are positive signs for a lot of home grown feed, which is the strength of the Gippsland dairy industry,” he said.
The Situation and Outlook report for Gippsland said despite the late autumn break, 2016/17 was an average to better than average season.
Seasonal conditions were reflected in the estimated average pasture harvest being about one tonne of dry matter per hectare (t DM/ha) higher in 2016/17 compared to 2015/16.
“The higher pasture harvest per hectare and higher than normal early
season culling rates resulted in lower reliance upon purchased concentrates and fodder,” the report said.
Cow numbers and milk production were on average slightly lower
than 2015/16 with seven fewer cows on average in each herd, and a reduction of three kg MS per cow.
The report indicated total operating costs were lower.
Purchased feed costs fell as a result of both lower purchase prices and
total tonnes purchased due to the longer growing season.
Herd costs and cash overheads were lower, while shed costs were unchanged.
From an EBIT (Earnings Before Interest and Tax) perspective across Gippsland farms, the drop in average milk price was offset by an increase in livestock income and a reduction in total operating costs. Based on opening prices and processors’ published forecasts, 2017/18 milk prices are expected to close around 10 higher than 2016/17 closing prices.
The report showed dairy farmers in Victoria had experienced relatively favourable weather conditions, and many had been able to cut
costs through the difficult 2016/17 season, as reflected in the latest Dairy Farm Monitor Project (DFMP) results.
Dairy Australia senior analyst John Droppert said the results reflected the reality of a volatile past 12 months for the industry.
“2016/17 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.”
Mr Droppert said despite the lowest milk price received in the history of the DFMP, 89 per cent of farmers recorded a positive return on assets as favourable seasonal conditions and pasture growth reduced feed costs, helping to offset the low milk price.
The report also found 89 per cent of surveyed farmers were optimistic for the 2017-18 season with the majority of participant farmers predicting an improvement in farm business returns.