THE NEW dairy season has just commenced, and there is already plenty to keep track of.
We have seen some of the highest opening prices ever announced coincide with farmer confidence hitting a multi-year low, more farmers than ever changing processor and the outlook for purchased feed increasingly challenging to say the least.
Throw in a great deal of investment in new stainless steel, and the ongoing policy and political debates; 2018–19 isn’t going to be boring.
To pull these factors apart, Dairy Australia’s recently released Situation and Outlook report takes an in-depth look at farmer confidence (as measured by the National Dairy Farmer Survey) and recent dairy market developments, drawing out several key insights.
The first is that confidence of farmers in their own business’ future has remained steady, whilst overall confidence in the industry has fallen.
As part of a regular program to gauge farmer sentiment and priorities, Dairy Australia’s National Dairy Farmer Survey (NDFS) was conducted during February and March 2018.
Drawing upon the views of 800 farmers across all dairy regions, the survey found overall farmer confidence has continued to slide.
Only 47 per cent of farmers feel positive or very positive about the future of the industry; down from 53 per cent last year and a peak of 75 per cent four years ago.
As was the case in 2017, a higher proportion of farmers were confident in the prospects for their own businesses, suggesting that their reasons for a general lack of confidence relate to external industry factors.
Furthermore, the share of farmers who were happy with the current position of their own business actually increased from 23 per cent to 32 per cent over the past 12 months.
This reinforces the contrast between the more positive view of factors closer to home, and concerns about the wider industry.
Meanwhile, from a market perspective, conditions have continued to improve in recent months, largely as a result of weather influences dampening milk production in key dairy exporting countries.
In addition to supply moderating, demand has improved; with numerous incremental events building a far more positive market picture than was the case six months ago.
In particular, cold weather played havoc with milk production in parts of Europe during the northern spring.
The ‘Beast from the East’ saw cows housed for longer than usual and fodder shortages emerge, especially in Ireland.
A tight product market (especially for butter) has created some price relief for European farmers, but weather forecasters are in turn predicting a hot, dry summer.
New Zealand has also had its share of challenges, and whilst the forthcoming efforts to eradicate Mycoplasma Bovis will likely have a modest direct impact on the global milk balance, they cause significant regionalised pain, and consume a great deal of industry time and resources.
Short-to-medium term challenges, combined with the acceptance that what analysts are calling ‘peak cow’ has been reached in New Zealand, suggest supply growth is likely to rely increasingly on yield improvements.
Looking ahead, significant downside risks remain, however it is likely to take some time before global milk supply once again builds sufficiently to fundamentally disrupt markets.
For Australian farmers, a better milk price this season has provided relief for some on the income front, allowing some progress on recovering the losses of recent years.
However, dry conditions across many regions through late summer and most of autumn have pushed the cost of key inputs higher.
Hay, grain and irrigation water prices are all eroding margins and present significant headwinds for the season ahead.
Late June opening price announcements and the treatment of sign on incentives versus base milk prices have reinvigorated farmer scepticism.
Amidst these pressures, Dairy Australia’s forecast approach for 2018–19 season milk production is conservative, foreshadowing growth of around 1 per cent above 2017–18, for a total of around 9.4 billion litres.
Incremental improvements to operating margins have delivered modest growth in milk production this season, and are expected to do the same in 2018–19, albeit restrained by increasing costs and ongoing farm exits.
However, the data from the NDFS shows that many farmers need more than tweaking at the margins to remain confident about the broader industry around them.
Major corporate transactions and the building of new milk processing capacity will likely unleash a further wave of changes to business arrangements and relationships through the supply chain.
With dairy markets showing much better signs than many had expected this soon, 2018–19 may provide the opportunity for the industry to rebuild farmer confidence.
• John Droppert is senior industry analyst with Dairy Australia.