Dairy monitor figures reveal haves and have-nots

Dairy monitor figures reveal haves and have-nots

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FORTUNATE: South Gippsland dairy farmer and consultant Rebecca Casey says her part of the region has had a bumper season.

FORTUNATE: South Gippsland dairy farmer and consultant Rebecca Casey says her part of the region has had a bumper season.

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The differing fortunes of dairy farmers across the state have been laid bare in this year's Dairy Farm Monitor Project, which analyses the financials of 75 carefully-chosen farms.

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The differing fortunes of dairy farmers across the state have been laid bare in this year's Dairy Farm Monitor Project, which analyses the financials of 75 carefully-chosen farms.

When interest and lease costs are considered, average net farm income across Victoria fell to -$24,000 but the statewide figure is almost meaningless given the variation between regions.

North plunges into the red with net farm income of -$85,000

In the north alone, milk prices varied from $5.78 a kilogram of milk solids to $7.11/kgMS, averaging $6.28/kgMS, but it was costs that really made the difference between make and break.

Rainfall was far below average in the north and the cost of irrigation was high.

Feed costs increased by 37 per cent to $4.40/kgMS, with concentrates and hay surging by 46pc and 55pc respectively and silage by 70pc.

It all added up to an average $7.38/kgMS cost of production (CoP) for the northern Victorian farms included in the survey, plunging the vast majority into the red.

The average return on equity (RoE) was -7.4pc and translated to a net farm income of -$85,000.

WHERE YOU FARM MATTERS: There were stark regional differences in the performance of farms surveyed by the Dairy Farm Monitor Project.

WHERE YOU FARM MATTERS: There were stark regional differences in the performance of farms surveyed by the Dairy Farm Monitor Project.

Gippsland a mixed bag, loss of $15,000

Gippsland's average milk price - the lowest in the state - was $5.97/kgMS and ranged from $5.57-$6.34/kgMS

The region stretches across several climate zones and that variability had a massive impact on profitability.

The south and west enjoyed a reasonable season with warmer winter temperatures and good pasture growing conditions in spring.

In contrast, unreliable rainfall across central and east Gippsland left farmers exposed to high input costs.

Project report author and Agriculture Victoria farm business economist Claire Waterman said irrigators in the Macalister Irrigation District (MID) received 100pc water allocations but no spill water, placing added pressure on those farms.

"The average EBIT for six or seven farms in the MID was 17 cents a kilogram of milk solids compared to the average of 84 across Gippsland, which illustrates the impact of the exposure to feed and water markets," Ms Waterman said.

Inverloch dairy farmer and consultant Rebecca Casey said it was important to drill deeper into the Gippsland region's data.

"I'm not surprised by the results of the project," she said.

"Some parts of Gippsland had a bumper season and their financials look a lot more like farms from the south west but other parts have had a horror stretch."

Feed costs grew 22pc to $3.27/kg MS, taking the average cost of production with inventory change to $6.07/kg MS this year.

Gippsland averaged a -2.3pc RoE and net farm income fell from $52,000 last year to -$15,000.

South west does better with $27,000

It was a different picture in south-west Victoria, where average spring rainfall allowed many farmers to build fodder reserves.

Even so, those who missed out on summer thunderstorms after a dry November struggled to maintain them.

Feed costs increased 10pc to $3.20kgMS for farmers in the south-west, about 27pc less than those paid by their northern counterparts.

The milk price ranged from $5.62 to $6.77kgMS and averaged $6.15kgMS.

The cost of production (with inventory change) was $6.25kgMS but there was a wide range, with most farms' CoP between $5.56-$7.06kgMS.

The average RoE as almost unchanged from last year at -0.8pc.

The south-west region performed best and made an average net farm income of $27,000 despite the cost of production being higher than the milk price, thanks to an average $0.80kgMS livestock trading profit.

Not the average farm

It was important, Ms Waterman said, to remember the report is a survey of just 75 selected farms.

"It's a biased data set, just by the nature of the sample," she said.

"Anecdotally, we believe we deal with the top 40pc of managers.

"This is 75 farms that we sample to see what's happened on those farms - we definitely want to avoid drawing conclusions about farms across the industry."

The farmers surveyed by the project milked an average of 357 cows, making their herds about a third larger than the Australian average.

"From a government and industry perspective, it's all about having farm-level information on profit and production performance to inform strategy and decision-making," Ms Waterman said.

"Other farmers can see what these farmers have done well and identify some of the strategies they have put in place, align it with their own goals and businesses to see if that makes sense for them."

Timing is everything

Ms Waterman said that, this year, the timeliness of decision-making proved critical.

"Some inputs, particularly with irrigation water, and similarly with grain and fodder, became more and more expensive as the season progressed," she said.

"The timing of decisions, and when people made a change to their business or a purchasing decision had an impact.

"In the south west and Gippsland, some farmers decided to reduce their production either by changing their calving pattern or feeding levels.

"Those who did well made that decision early, whereas those who made the decision closer to Christmas had already incurred a lot of the costs and didn't see the same benefits."

Looking forward

Farmers surveyed by the project just after this season's opening prices were announced were more confident about their profitability prospects in 2019/20.

For many, it would be with good reason, Ms Casey said.

"Here in south Gippsland, we've been getting lots of spring rain and farmers who have done their planning will have plenty of fodder," she said.

"Glenmaggie Weir is also looking promising for irrigators further east.

"But it's important to get together with your team - your consultant, accountant and banker - to help chart the way forward, especially for those farmers who've had a series of tough seasons."

For more information on the support available to dairy farmers, contact Agriculture Victoria on 136 186 or visit agriculture.vic.gov.au/dryseasons

The annual report is available at agriculture.vic.gov.au/dairyfarmmonitor

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