Global market conditions improve but rising costs hamper balance sheet repair
Dairy Australia’s latest Situation and Outlook report has delivered a better-than-expected market picture, with global supply and demand fluctuations shifting in favour of Australian farmers.
While global market forces and domestic competition for milk supply looked set to usher in better farmgate prices, high operating costs and decreased farmer confidence were expected to restrict production growth to about 1 per cent in 2018/19.
Dairy Australia senior industry analyst John Droppert said a run of dry conditions across many dairy regions through late summer and most of autumn was likely to limit the short-term impact of any price rises on farm balance sheets.
Tight margins and difficult seasonal conditions in 2017/18 hit Australia’s northern, domestic-focussed dairy regions hardest, prompting an increase in farmers exiting the industry in those areas.
“Hay, grain and irrigation water prices are all eroding margins and present significant headwinds for the season ahead, particularly in those parts where dry conditions persist.” Mr Droppert said.
But an unfavourable northern hemisphere spring meant a predicted European oversupply failed to materialise. This delivered a brighter outlook for farmers in Australia’s southern, export-focussed dairy regions.
“Six months ago, the European supply situation was weighing heavily on the global market outlook and, while risks remain, it is likely to be some time before the amount of milk coming out of Europe builds back to a level that could create a market imbalance,” Mr Droppert said.
The June Situation and Outlook report includes the findings of its annual National Dairy Farmer Survey, showing less than half (47 per cent) of farmers across all eight dairy regions remained confident in the industry’s future, down from 53 per cent last year.
The survey was undertaken in March, amid growing concerns at a lack of rain and uncertainty around changes in the processing sector.
The trend of decreasing confidence was spread across nearly all regions but farmers were more likely to have confidence in their own operations than in the industry as a whole, with 55 per cent saying they felt positive about their own business.
“Overall, farmers are happier with their own businesses but less so about the industry which is a reflection of uncertainty around the structural changes and that will take some time to settle,” Mr Droppert said.
The survey highlighted that 80 per cent of farmers remained committed to a long-term future in the industry, while 11 per cent were in the process of winding down.
View the Situation and Outlook 2018 full report, including regionalised breakdowns.
Back to news