Dairy Australia's Situation and Outlook October report shows Victoria had a record high in farm gate milk prices contrasted by low water availability and high input prices.
Senior industry analyst John Droppert commented on Dairy Australia's forecast of a three to five per cent decrease in national milk production to 8.3 to 8.5 billion litres for the full season.
“This season’s farm gate milk price will provide some farmers with the chance to make up some ground financially, however, high costs of feed and water and ongoing drought will continue to hold back profitability,” Mr Droppert said.
Water shortages and the high cost of irrigated water have lowered farmers’ confidence.
Feed supplies have been forecast to remain slim, despite failed grain crops cut for hay and used for fodder.
Farmers who retained access to feed inventory and carried over water reduced the impact of high input prices, however, many farmers resorted to purchasing supplementary fodder and late season water.
Dairy Australia managing director David Nation said the dry weather outlook for the remainder of the season was concerning.
“The outlook for continued dry conditions is likely to see ongoing pressure on feed costs,” Mr Nation said.
“Conditions are favourable in some areas, but we’re urging all farmers to monitor their feed plans and use the resources available via Dairy Australia’s website to make informed decisions."
Risk management strategies were used to manage the conditions across Victoria, including:
■ Lowering exposure to fodder market.
■ Having a reliable source of water (if possible).
■ Growing feed inventory from more profitable years.
■ General efficiency across the business in both variable and overhead costs.
Dairy Australia said Australia's milk production would decrease further throughout 2019–20 due to a reduced milking herd.
Higher retail prices have caused value growth for dairy products, including yoghurt and cheese.
The report said consumers were paying more for products if it helped support a cause. For example, when retailers launched specific milk products as 'drought milk’ to support dairy farmers, private label milk sales increased.
In the 2018-19 season, high-reliability water shares received 100 per cent allocation and the median price for temporary water was $470/Ml.