Industry recovering but farmers are cautious

While confidence is slowly returning to the dairy industry, Dairy Australia senior analyst John Droppert said many farmers were still facing major trust issues following last year’s milk price crash.

“Overall, farmers are more cynical and cautious. Confidence in the industry is returning, but then there are trust issues…and that has to be worked through as well as recovering financially,” he said.

Dairy Australia released its February Situation and Outlook report last week.

Mr Droppert said Gippsland farmers were no different to the rest of Victoria and Australia and were still suffering from the slashing of prices and resultant trust issues.

“Gippsland is a little more complicated because the season before was so variable and many businesses in the drier areas of South Gippsland were vulnerable.

“But overall Gippsland farmers probably started the season in a more stable position. A lot of farmers in northern Victoria are recovering from 10 years of drought and then flood. Those extremes are still here in Gippsland but in smaller pockets,” he said.

While production levels in Gippsland are down two per cent compared to the same time last year, Mr Droppert said this was a lot more stable than northern Victoria farmers who were facing a 17 per cent drop in production.

“The 2017 calendar year has started on a more positive note for the industry, but the overhanging issues from the events of 2016 will not be erased overnight,” he said.

Dairy Australia will conduct a farmer survey in April that will more closely examine farmers’ confidence.

But, Mr Droppert said anecdotal evidence suggested about five per cent of farmers left the industry during last year’s downturn.

“What is just as important as that is the number of cows being culled. Culling was up by 30 per cent in the pring compared to the year before,” he said.

The Situation and Outlook report showed the balance in global dairy supply and demand had improved markedly in recent months, while closer to

home farmers were seeing some improvement in drivers of farm profitability.

International dairy commodity prices for most products have returned to being above five year average levels and costs of major inputs continue to fall, with big grain and hay harvests bolstering supplies.

However, Mr Droppert said production margins remained tight or negative, and many farmers faced a significant task rebuilding their equity position after the past 12 months.

“Better seasonal and margin indicators are encouraging, but ongoing challenges surrounding confidence and trust remain big impositions for many farmers in southeast Australia.

“Improved farmgate profitability will help, and the current market settings look conducive to delivering this, albeit not without risk given the threats posed by resurgent supply growth internationally and broader political and economic disruption.

“It’s also important to acknowledge that in many domestic-focused regions, farmgate prices are coming under pressure, so these farmers are at a different stage in the cycle,” he said.

In the wider international market, the balance between supply and demand pressures is keeping commodity prices stable in the short term, after a steady recovery during the second half of 2016.

“Sentiment drove the recovery, and the fundamentals have since caught up. The question is: what next? A period of consolidation around current commodity pricing seems likely.”

“The value of global exports was down by 14% though, with falls across all major markets except Greater China, reflecting the lower global prices for key dairy commodities for much of the year,” Mr Droppert said.