Article by: Hari Yellina (Orchard Tech)
A positive global market outlook and high farmgate milk prices will help maintain Australian dairy farm profitability this season. The report paints a buoyant picture for the industry with most indicators sitting at either positive or neutral. In fact, the only major negative is for the global economy, with the report citing the International Monetary Fund’s downgraded economic growth forecast for 2021. Dairy Australia senior industry analyst Sofia Omstedt said the momentum from last season’s close-to-record farm profitability levels looked set to continue.
The Dairy Farm Monitor Project showed the highest average returns for 2020/21 in most regions since 2013/14. The report warns increases in some critical input costs will create challenges for farmers to maintain these profitability levels, despite generally higher farmgate milk and cattle prices. With higher input and output prices, farmers will be giving careful consideration to input levels in trying to maximise returns. Additionally, for some farmers, the most profitable settings will mean lower milk production.
The report also states that as long as seasonal conditions remain favourable, returns on most farms should be similar to 2020/21. Despite the positive outlook and high prices, Australia’s milk pool is tipped to shrink marginally this year. The report says local analysts are forecasting a 0.2 per cent drop. The latest figures from Dairy Australia show milk production fell 2.1pc in October of the previous year, while year-to-date production was down 2.9pc.
Milk production year-to-date is down in all states, except NSW, showing the impact of the wet start to the season in southern regions. Wet weather and cold fronts have impacted per-cow yields this spring. Other factors including labour shortages, firm beef and land values, and business diversification also weigh on milk production. In addition, the report also says wet and cold weather presents a challenge to growth, while ongoing farm exits and culling continue to weigh on the rebuild of the national herd. During a season with otherwise profitable conditions, it is important to distinguish between a stagnant milk pool and overall farm business health.