Australian dairy farmers have been facing rising input costs across the board this year.
Fodder and water prices have increased amid tighter availability and stronger demand from southern regions, while grain and fertiliser values continue to be either hindered or helped by international factors.
With summer just around the corner, many are waiting to see whether price pressures will pause or persist.
In a phenomenon not unknown to Australia, weather conditions have been vastly different between northern and southern dairying regions over the past 12 months.
Along the east coast, above-average rainfall has been excessive in select parts, with flooding occurring in some areas during May.
Large parts of Victoria, South Australia and Tasmania, however, have experienced below-average rainfall this year, with sections of western Victoria and Gippsland seeing the lowest on record.
As such, farms with access to irrigation have had a more favourable year, as they balance rising feed and water costs with the drier weather conditions.
However, water storage levels across most Victorian sites continue to fall below last year and seasonal determinations slow to rise.
In light of this, temporary water prices increased 91 per cent and 146 per cent in the northern Victorian and Murray Irrigation systems, respectively, in September (compared to the same time last year).
Demand for supplementary feed also increased substantially, as many farmers worked through feed reserves amid drier conditions.
As hay bales were transported from northern and Western Australia to support the drought affected areas, fodder prices surged in most dairying regions.
Cereal hay prices saw the largest increases in the southern regions, rising 54 per cent year-on-year to their peak in June.
With cereal hay being hard to secure and many farmers looking for other alternatives, the value of almond hulls also spiked during this time.
Since then, values have slipped after the winter rain, improved pasture conditions and better fodder supply prospects as crops are cut for hay.
Increased demand for supplementary feed also pressured grain values, however international factors have weighed on prices since April.
Strong Northern Hemisphere yields and lower export interest for Australian grain have been a significant counterweight to domestic pressures, in addition to favourable growing conditions for crops in states such as Queensland.
The somewhat strong yields expected over harvest and softened domestic demand upon improved conditions in some states, will likely weigh on grain values in the coming months.
International supply has also been a key driver for fertiliser prices this year, however tight product availability has pushed values above last year.
The uncertainty of US trade policy announcements and geopolitical conflict (such as in the Middle East) resulted in additional demand for fertiliser products.
At the same time, production constraints in the Middle East and Europe tightened potential supply, while China (one of the world’s largest exporters of urea and diammonium phosphate) had restricted its exports to temper domestic input pricing.
As such, urea and DAP increased 37 per cent and 41 per cent, respectively, from September last year.
While feed reserves have been worked through, a favourable spring forecast may provide the opportunity to stock up, however, hay prices continue to track above last year.
Strong grain yields over harvest will likely weigh on domestic feed prices leading into summer, but water and fertiliser cost pressures may persist.
Australian dairy farmers can find some relief in recent cost easing, but the pressures are not yet over.
Eliza Redfern
Dairy Australia’s analysis and insights manager