Outlook dire for dairy farmers with high water, feed costs

Outlook dire for dairy farmers, with record farm gate prices offset by expensive irrigation water and feed, and a dry outlook.

The outlook for dairy farmers remains dire. Picture: AFP.

The outlook remains dire for many dairy farmers, with record farm gate prices offset by hugely expensive irrigation water, high feed costs, and a dry weather outlook.

Dairy Australia’s latest industry report says another warm and dry winter has hit feed cost and availability, while the cost of irrigated water has continued to increase for farmers in the Murray region.

Australian milk production declined 6.9 per cent in the season to August as a result of cost pressures, low rainfall in some regions and reductions in herd numbers, it said.

In recent weeks the price on the spot market for a megalitre of water has shot up from a long term average of $135 to more than $800.

Many farmers have accused companies which have no agricultural land and are pure water traders such as publicly listed Duxton Water Ltd of hoarding, speculating, and driving a spike in prices.

Duxton Water’s director of water assets, Alister Walsh, on Wednesday denied the allegations, saying Duxton was a long-term investor rather than a speculator.

Mr Walsh told ABC radio the company had built up a water “portfolio”, but denied this constituted hoarding, saying Duxton Water offered medium and long term leases of water to farmers who did not want to tie up capital in expensive permanent entitlements.

Duxton Water doubled its profits at its last reporting period, and said it had provided a total return to investors of nearly 30 per cent in the year to June.

Mr Walsh told ABC radio “we are a for-profit company, as are our counter parties in the market.”

Asked if in addition to buying permanent water entitlements, Duxton Water was playing the spot market, Mr Walsh said:

“We actually manage our usable water component.”

Dairy Australia said feed supply was forecast to remain tight with a dry outlook for the remainder of the year and drought conditions persisting in some regions.

The group maintained its forecast of a 3 to 5 per cent decrease in national milk production to 8.3 to 8.5 billion litres for the full season.

“Australian dairy farmers have entered a season of record farm gate milk prices, however milk production has continued to contract due to ongoing high production costs and dry conditions in many areas,” said Dairy Australia senior industry analyst John Droppert.

“There is a mixed picture across the country. For many farmers in southern Australia, good early-season rainfall has provided a head start on pasture growth and fodder conservation, but those in drought affected areas further north are facing a second season with few palatable options.”

The strong farm gate milk prices reflected buoyant international commodity prices and intense competition for milk supply among processors due to reduced Australian milk production.

Higher retail prices have delivered better returns for all major dairy products in Australian supermarkets, Dairy Australia said, mainly in private label and branded milk but also dairy spreads.

Premium priced speciality products such as health-style yoghurts and deli cheeses have also experienced sales growth.

“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.

“Whilst these challenges persist, milk production is likely to remain subdued.”