A restructured management approach that has put more onus on staff is paying dividends for farm managers Isaac and Michelle Johnstone.
As reported in this column last month, milk volumes are consequently down as well – around 10% for the season to October.
There are, however, some positive signs as we enter the festive season and finally start to see hay being baled without the hassle of bogging machines every few laps.
Firstly, feed prices continue to fall, with both grain and hay values continuing to slide.
Water is also cheaper in irrigation regions - $100/ML may be a stretch for some given current operating margins, but it’s a long way ahead of $300/ML of a year ago!
Secondly, the weather appears to be settling down, and there continues to be green grass in places that are usually long dry by now – and certainly were last year.
This will help take some further heat out of feed costs.
The third factor beginning to deliver some upside is the continued improvement in commodity prices.
Global commodity prices have an influence well beyond the proportion of Australian production that is exported, through competition from imports, and domestic supply contracts pegged to international indicators.
November was a month of further increases in commodity prices, with a mixed set of gains across the key product lines.
New Zealand’s milk production numbers (down around 6% for October) look increasingly subdued, and sharply tighter Australian milk volumes are constricting local product availability.
The sharpest pricing and biggest challenges around sourcing have been in the butterfat market, with many traders continuing to report that Australian butter is near (if not) impossible to procure.
Pricing up to US$1,000-2,000/t above bulk commodity indicators is being reported in places as smaller domestic buyers scramble to shore up requirements.
Reports of additional New Zealand imports and businesses buying product off retail shelves highlight the extent to which some are having to go.
Australia is not alone in facing a butterfat squeeze, with strong butter prices a regular feature of the US market in recent times, and a number of export buyers caught short when European supplies have tightened sharply.
No one cause has been singled out, but many point to consumer shifts back towards more ‘natural’, full-fat products at the retail level (evidenced in part by growth in butter and whole milk sales in Australia), and equivalent moves by food manufacturers and food service/takeaway players.
The other mover recently has been whole milk powder, with prices firmer as enquiries tick along and other (non-China) markets reportedly show more interest (though how much interest remains a matter of debate).
Lower New Zealand milk volumes are also going a long way to helping to support pricing up towards the mid US$3,000’s/t.
China remains the dominant market however, and questions remain around the sustainability of this rally into the medium term if purchasing from others doesn’t pick up.
Australian volumes are relatively limited in any case, with WMP pricing affecting the skim milk powder (SMP)/butter calculations as much as anything else.
Prices for SMP itself continue to face pressure from US and European competition, though tighter supplies due to lower milk volumes have allowed many manufacturers to drive values up somewhat.
The market faces some downward pressure (or expected pressure) from the imminent commencement of sales of European intervention stocks.
Having said that, it is widely acknowledged that the age of the product being sold (over 12 months) will limit the extent to which it can undermine prices for fresh SMP.
Cheese prices have increased in line with the broader market dynamics; the bi-annual Japan negotiations are still underway but reports suggest some further upside potential for cheddar. Cream cheese and mozzarella have also firmed significantly over the past month.
The general market feeling is one of cautious bullishness, with milk supply contraction and some reduced buyer resistance helping this along internationally.
In Australia, the more acute supply squeeze being felt by some is further amplifying this.
Into the medium term however, enough downside pressure remains to suggest that runaway price increases are less likely than the current incremental rebalancing – but nonetheless, it’s a more positive situation than this time in 2015.
There’s no denying things remain incredibly tight on farm, but it’s fair to say there is also some cause for Christmas cheer.