Many like to view the beginning of a new year as a clean slate, however, reality sometimes gets in the way.
In fact, most market forces impacting the dairy industry in Australia have remained the same since the end of 2021. While elevated input prices, especially grain and fertiliser costs, have continued to weigh on farm margins, the fodder and water markets remain quiet as rain-dominated weather limits demand.
This summer has so far proven hot and humid, with above average rainfall across the east coast. The La Niña event in the tropical Pacific, paired with a positive Southern Annular Mode (SAM), has continued to bring wet weather to parts of central and eastern Australia.
While rain has supported soil moisture and water availability in these areas, warmer weather has begun to dry out some regions, especially in Western Australia.
Water storage levels across the east coast have started to decrease due to warm conditions but remain substantially fuller compared to last year.
Strong supply of water has seen additional increases in seasonal determinations, further softening temporary water prices.
The value of water in the Murray irrigation district dropped to a historical low of $39/Ml in January, with many users capitalising on low prices by purchasing and trading significant volumes.
Where rainfall has been abundant, pasture growth has continued. Plentiful home-grown feed has been a consistent deterrent for fodder trade during the past year, and above average rainfall over spring and summer has ensured a continuation of this trend.
However, drier weather in southern Victoria, south-west WA and north-west Tasmania has encouraged the use of stored feed and impacted pasture growth. As such, fodder demand has started to build in these regions, while in others some farmers have started to plan for the autumn and winter seasons ahead.
All in all, hay prices remain subdued and below five-year averages.
While Australia currently deals with various heatwaves, a hot Northern Hemisphere summer last year failed to replenish the world of much needed grain supply. Since then, all eyes have been on Australia’s harvest, which did not disappoint.
This year’s harvest proved to be one of the largest on record, despite flooding in NSW and Queensland. A significant amount of wheat harvested has been downgraded to feed from the wet conditions, and there is strong demand from Asian buyers, particularly China.
Globally, grain values have surged in many exporting regions due to limited supply and weather concerns for the upcoming production season.
Adding salt to the wound, Russia placed export quotas on its product to mitigate rising local prices and, more recently, uncertainty regarding the looming tension with Ukraine has further lifted prices.
Australia’s large harvest and current shipping challenges have maintained a price discount of Australian grain compared to international products, nevertheless, prices remain above last year’s values.
Tight supply and export restrictions also place significant strain on fertiliser prices.
China’s export ban remains, and Russia has recently banned exports of ammonium nitrate in an effort to ensure local supply. The cost of gas, a key fertiliser input, continues to be elevated, impacting global production. As such, fertiliser prices remain high globally.
Back home, there have been reports of growers planning to utilise less phosphate and urea product this year to lower operating costs, which could impact crop yields.
While some sources suggest bulk shipping prices have eased in recent weeks, many challenges remain due to ongoing supply chain disruptions, fuelling cost pressures.
Additionally, inflation has significantly impacted the costs of some farm inputs and it is becoming more expensive to produce many agricultural products, including dairy.
In light of growing costs, milk price step-ups in southern export-focused regions have been a welcome relief and could help cushion the impact of margins this season.
Nevertheless, with inflationary pressures appearing across the supply chain, we will most likely have to prepare for more costs to be added to the slate this year.