The annual Victorian Dairy Farm Monitor Report has shown the full extent of the “perfect storm” which hit producers last financial year.
The drought and farm gate milk price cuts saw average net farm income from $135,000 for 2014-15 to minus $41,000 for the 2015-16 financial year.
That was an average fall of 70 per cent in real earnings.
Farm business economist Claire Waterman said average earnings, before interest and tax, were $70,804 - the third lowest in the ten year history of the report.
“The perfect storm of lower milk prices, low rainfall, high water costs, reduced pasture growth and higher feed costs, is reflected in the report’s findings, which show 40 per cent of farmers surveyed did not record a positive return on assets,” Ms Waterman said,
“Key critical business decisions that helped minimise losses included buying fodder early in the season, culling underperforming cows at higher livestock prices, using long-term fodder reserves, and buying extra fodder to supplement the lower pasture availability.”
Farmers in the north also made strategic water use decisions, such as drying off underperforming pastures, and turning their attention to growing summer fodder crops.
But the survey found high water costs also had a significant impact.
“The combination of below average rainfall, higher temperatures and a competitive temporary water market provided challenging operating conditions,” Ms Waterman said.
“The drier conditions meant farmers had a greater reliance and exposure to the fodder and temporary water markets.
“For those farmers who purchased temporary water between years, the average price increased from $120/ML to $236/ML, contributing to a 40% increase in irrigation costs to $0.67/kg ms.”
The south-west received the lowest rainfall on record, resulting in a decline in long-term fodder levels.
“Farmers then purchased additional hay at elevated prices compared to the previous year, to see out the financial year.”
The south-west recorded the highest milk prices, $5.47 kg/ms; it was still 11pc lower than the previous year.
In Gippsland, farms in the Macalister Irrigation District (MID) fared better than those without reliable water.
“The overall lack of pasture growth combined with reduced fodder conservation led to more fodder being fed and purchased than in other years,” Ms Waterman said.
“The lower profit performance of Gippsland farms in 2015-16 was the result of a 10% decrease in milk income to $5.28 kg/ms and a six pc increase in costs, due to managing difficult seasonal conditions.”
The Monitor, funded by Agriculture Victoria and Dairy Australia, surveyed 75 farmers and showed return on assets was 0.6 per cent, compared with the previous year, of 5.3pc.
“The average milk price declined 11 per cent to $5.40 kg/ms, compared with $6.04 kg/ms last year, a key contributor to lower farm profits.
Farmers surveyed also painted a gloomy picture, for this financial year.
“Given the complexity of the challenges ahead, the report found three in four farmers expect their business returns to deteriorate in 2016-17, with the majority predicting lower milk prices and higher input costs will lead to a further reduction in profits,” Ms Waterman said.
Milk price, succession planning and water were the main concerns farmers identified, over the longer term.
Data over the past ten years of the project showed that farm profits (measured as return on assets) in the North and South West were the second lowest recorded and Gippsland had the third lowest.
Data over the past ten years of the project showed that farm profits (measured as return on assets) in the north and south west were the second lowest recorded and Gippsland had the third lowest.
