Milk prices forecast to rise

By Dairy News

BASED ON opening prices and processors’ published forecasts, 2017–18 milk prices are expected to close about 10 per cent higher than 2016–17 closing prices, according to Dairy Australia’s Situation and Outlook report. The report found that, to date, seasonal conditions in Gippsland have been mixed. While dry winter conditions provided ideal conditions for most of the high rainfall Gippsland regions, the risk of below average spring rainfall remains a concern, particularly for East Gippsland and the Macalister Irrigation District, which have experienced a dry start to the 2017–18 year. Expenses are more difficult to estimate with uncertainty around grain prices and seasonal conditions.

The potential impact on feed costs could be between $0.20/kg MS and 0.80/kg MS higher compared to 2016–17. With a slight increase in milk production forecast—due to both an increase in production per cow and an increased number of cows—herd, shed and overhead costs could be expected to fall slightly which, together with a continued focus on cost control, could see these combined costs drop by $0.05–0.20/kg MS in 2017–18. The report found despite the late autumn break, for the majority of rain-fed regions in Gippsland, 2016–17 was an ‘average’ to ‘better than average’ season while the MID received full irrigation allocation. Seasonal conditions were reflected in the estimated average pasture harvest being about

1.0tonne of dry matter per hectare (tonne DM/ ha) higher in 2016–17 when 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. Cow numbers and milk production were on average slightly lower than 2015–16 (seven fewer cows on average in each herd, and a reduction of 3.0kg MS per cow respectively). A lower average milk price ($4.84/kg MS versus $5.28/kg MS) and higher cull cow prices drove higher livestock income as farmers on average culled more heavily. 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. Home-grown feed costs were effectively unchanged including inventory change. Herd costs and cash overheads were lower, while shed costs were unchanged. From an EBIT (earnings before interest and tax) perspective, the drop in average milk price was off set by an increase in livestock income and a reduction in total operating costs. This resulted in a slightly higher EBIT in 2016–17, with net farm income (EBIT minus interest and lease costs) averaging -$0.03/kg MS in 2016–17 compared with -$0.38/kg MS in 2015–16.

Source: Dairy Australia Situation and Outlook report.