Tough conditions limit season’s potential

This season was not shy of curve balls for many dairy farmers, as described in Dairy Australia’s December Situation and Outlook report.

On one side there have been extensive seasonal challenges, high input costs, labour shortages and an increasingly volatile global dairy market.

On the other, there’s been record farm gate milk prices on average, leading to the fourth most profitable year for dairy in Victoria since the Dairy Farm Monitor Project (DFMP) began.

Widespread and prolonged wet conditions across the east coast and large parts of Tasmania have helped grow impressive stands of grain, fodder crops and pasture, only to then delay harvest and inundate thousands of hectares.

While full dams and soil moisture profiles will produce future benefits, for many farmers, the immediate challenges are significant.

Farmers have also been contending with heightened costs of key inputs, recently clocking up a year since the sharp increase in fertiliser and grain values in late 2021.

International pressures are set to maintain a floor under indicative fertiliser prices, while the path is less clear for grain values.

Recent flooding across eastern Australia has very much taken the shine off the bumper grain harvest expected, with the overall effect almost certainly going to see prices pushed higher — especially for high-quality product.

Even though this brings potential for opportunistic access to downgraded product such as feed wheat, the opportunity to maximise home-grown feed production and reduce reliance on purchased feed markets has been taken from many.

Considering continued variability of inputs costs and the impacts of wet weather on dairy businesses, milk production will more than likely be revised down from Dairy Australia’s initial forecast of a flat milk pool.

The season to October saw milk output contract by 6.5 per cent, with the wet conditions and flooding expected to weigh on this further, having occurred at the critical point of the spring peak.

Notwithstanding these significant challenges, new analysis confirms farm finances entered this season in a strong position.

Farmer profitability, as measured and reported by the DFMP, decreased in 2021-22 relative to the year prior.

While milk prices on average were higher and livestock trading conditions were strong, rising input costs offset the increase in gross farm income received compared to last year.

Seasonal conditions proved challenging in some regions while being favourable in others.

The current 2022-23 season has seen a continuation of high milk prices and high input costs, with wet conditions a challenge for most regions.

Staffing remains a challenge — the DFMP data for 2021-22 demonstrated increased reliance on imputed labour (unpaid farm owners and family members) in many businesses, as a substitute for paid labour that could not be found.

This also led to increased investment in labour-saving technologies. Other trends highlighted by the DFMP analysis were an increase in dairy farm business diversification (especially towards beef production), reduced fertiliser usage, and lower home-grown feed production.

Competing dairy export regions continue to face challenges as well. Exporters are continuing to encounter sluggish dairy demand in key markets.

China and its COVID-19 policy are being regarded as a bellwether, with much analysis devoted to interpreting any signs of loosening in the country’s COVID-zero goal and policies.

Commodity prices have eased on weaker buying and signs of supply growth in the Northern Hemisphere, but this has been gradual and counterbalancing upward pressure is still to be found.

While global production is facing its own set of challenges around the world, Australian dairy farmers will be dealing with the lingering effects of a wet spring.

So, for many, although higher pricing is flowing back through the supply chain to help offset significant cost pressures, the potential for a short-term silver lining hinges on the availability of downgraded feed grain and the transition (whether sudden or gradual) from wet to dry conditions over summer.

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