Dairy Australia situation report: Inflation chasing farmgate profits
Profitability in the dairy sector would be soaring if it wasn’t for a multitude of inflationary pressures, a new report confirms.
Record prices for dairy are being chased by galloping inflation as the clock ticks down to the start of the new season.
Released Wednesday, Dairy Australia’s latest situation and outlook report reveals fertiliser and fodder costs will continue to stalk the sector into the new financial year.
Early announcements of opening milk prices have set new records with two of Australia’s big three processors opening with prices above $8 per kg milk solids.
However, Dairy Australia analysis manager John Droppert said fertiliser, fuel and grain prices were surging on the back of export logistical blockages in Asia as well as flow-on effects from the Russia-Ukraine war.
“Labour shortages are also a big factor in business planning for farmers, not just dairy farmers,” Mr Droppert said.
“Anecdotally, farmers who may in normal circumstances plan to expand their operations aren’t able to due to the shortage of workers. But they may be making smaller-scale investments and upgrades to their farms.”
Fodder prices continue to eat into the profit margins of dairy farmers, with Queensland producers hit particularly hard.
Statistics provided by the Australian Fodder Industry Association to Dairy Australia showed the Atherton Tablelands had some of the highest fodder costs with an average of $350 a tonne for pasture hay.
The fire-ravaged Bega Valley also had heightened hay costs at an average of $285/tonne for cereal hay, although the fodder costs had eased in recent months.
“Fodder and fertiliser costs have placed pressure on many farmers in the past year,” Mr Droppert said.
“Obviously, depending on which region you’re farming in, supply has an impact and that flows onto the average costs.”
Results from this year’s National Dairy Farmer Survey were included in the report.
The survey confirmed that profitability continued to improve this financial year, with 88 per cent of survey respondents reporting an operating profit in the 2020-21 season, and 90 per cent expecting to do so in the 2021-22 financial year.
Mr Droppert said 82 per cent of Australian dairy farmers were confident about the future of their own businesses while 68 per cent of respondents were feeling optimistic about the industry’s overall trajectory.
Nationwide, 700 farmers participated in the survey covering the eight dairy regions.
“Farmer confidence is at its highest level since 2015 and there was little variation by region in terms of confidence — it was across the board. Although clearly northern NSW and southern Queensland have endured several testing months following the floods,” Mr Droppert said.
“Strong prices this season and the record opening prices for the coming season provided a big confidence boost.”