Farmgate milk prices to help offset dairy farmers' rising input costs

Colac processor Bulla Dairy Foods went to the top of the processor pack this week, offering between $9.40-$10 a kilogram milk solids, in what are now record farmgate prices.

Bulla was one of the first to announce an opening season price in April, offering between $7.40-$8/kg MS, with other processors soon following suit.

Stony Creek dairy farmer Doug Hanks said the high prices would make it easier for producers to remain profitable.

"I have heard of a couple of people who sold all their cows three or four years ago, [who are] thinking about getting back into dairy," Mr Hanks said.

"That's promising, people are thinking about it again.

He said the price of fertiliser had doubled in 12 months, while grain had gone up $100 a tonne to between $400-500/t.

But he was concerned pushing the price of milk too high could see processors importing ingredients.

"Processors are here to make money, everyone wants to make money, and if your costs go too high, they won't make anything or they will import ingredients," he said.

"It's still going to be tight, but farmers are pretty good budgeters - we know we only have a certain amount of funds we can spend and we will budget accordingly to keep our head above water."

He said the season had been more favourable in Gippsland, which was now "wet enough".

"We are a lot better than last season, last season we were wet from March onwards," he said.

"We are looking at a better season, we will get a reasonable winter and hopefully spring is not too wet, so we can grow some feed.

"That will mean we don't have to import fodder, as we will just grow it on farm."

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Cohuna dairy farmer Kelvin Matthews said although prices were up 30 per cent on last season, input costs had also risen.

"The bills are going to be bigger, the milk cheques are going to be bigger but I think the margin inbetween is going to stay the same," Mr Matthews said.

"For us, the biggest input is grain and silage, we don't own any water so there is a lot of bought in feed.

"The other week, my grain mix jumped another $30-$40/t overnight, I am told it is going to keep going up.

"It's starting to bite now and we are going to have to make that up later on."

He said processor costs had also gone up, "and yet they are still making money".

"How much have we been missing out on all these years?" he said.

"They come out with an opening price of $8.80/kg MS, in two weeks they jump their price and that's another $80,000-$90,000 for my businesses - that's huge.

"They've just done it without blinking."

He said processors appealed to farmer loyalty, to encourage them to stay signed up and not switch.

"It's pretty hard to swallow when they have shifted the price so much," he said.

"Where's the loyalty part?"

Winslow dairy farmer Jock O'Keefe said it was a "very good price".

"Even $8/kg MS would have been alright, but it's pushing $10/kg MS - the price jump is beyond belief," Mr O'Keefe said.

But he said grain had gone up to $500/t and fertiliser had doubled in price in the last 12 months.

"You would think those prices would come back down in the future to a reasonable level," he said.

He said the greatest issue was the shortage of milk supply, partly driven by staff shortages and dairy exits.

"That's the crux of the matter, attracting better people and getting enough money to pay the right ones to stay and build a career out of it," he said.

Maffra Upper West dairy farmer Raelene Hanratty said the Dairy Code of Conduct had changed the environment when it came to opening prices.

Ms Hanratty said coupled with a reduction in supply, there was now greater competition in the market.

"Thankfully this has occurred at a time when input costs were rising due to both local conditions as well as international factors," she said.

"I would be very wary though at getting excited every time an announcement is made and becoming complacent; this year will still require a tight grip on spending."

She said non-fixed costs and variable inputs were where farmers needed to be diligent.

"Feed costs, including fertiliser, grain and hay are volatile and it is here we need to do our homework," she said.

"My opening milk price compared to last season has increased by around 38pc.

"Input costs could do the same on average and we should be right, as long as we were running profitably to start with."

She said it was still a balancing act, with some input costs rising by 200pc or more.

"Rather than trying to speculate as to future costs I will be doing my budget using the opening milk price as the base for income and calculating my expenses based on what I know now, adding a contingency for costs that have the ability to rise," she said.