Thursday, 23 June 2011 09:37

Early season prices mask big picture

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The new milk season looms as a period of consolidation for most Australian farmers but we are starting to see a concerning divergence of fortunes between those in south eastern Australia and those in Queensland, northern NSW and Western Australia.

Fonterra has again bucked the traditional trend of keeping farmers waiting until June or July for an opening price with its announcement of $4.65/kg milk solids for its 1300 suppliers in Victoria and Tasmania.

It's a 9% increase on last season's opener but the company will hope to average more than its current price of $5.45/kg MS by the end of next season.

Murray Goulburn suppliers in south east Australia will be hoping the co-op repeats its form of last season, when it opened almost 40c/kg MS higher than Fonterra.

Dairy Australia's economic analysis leads it to believe the full year average price will range between $5.10 and $5.50/kg MS – similar to the current season.

Dairy Australia also says farmers are not yet convinced about the opportunities for growth.

Its annual national survey shows cash flow has been slow to improve, and the better returns currently being enjoyed are merely enabling many producers to restore their financial positions following the poor returns of the previous two seasons.

Farmers are seeking a more sustained period of reliable returns before investing in herd growth or infrastructure.

Policy settings around continued access to water and the impact of any carbon pricing schemes will also be important drivers of the Australian industry's future competitiveness and growth prospects.

Decisions on the emissions trading scheme and Murray Darling Basin will be crucial to the growth of the sector in the country.

While operating conditions have improved dramatically for most in the industry, differences in price signals and demand highlight regional variations.

South Eastern Australia farmers are enjoying arguably the best conditions for a decade with good export demand growth, competition for suppliers and favourable seasonal conditions.

This situation is supported by improved milk prices combined with greater feed availability.

However in Queensland, northern NSW and Western Australia – where the industry is geared towards fresh milk supply – uncertainty created by plant closures and private label milk discounting is undermining the confidence of farmers.

Production in northern regions has also been constrained by flooding and cyclones early in 2011, while WA farmers have been struggling with drought conditions and some uncertainty in the processing sector.

Australia needs a viable dairy industry in all states and a series of natural disasters and government and commercial decisions is making this more difficult.

A new season will present another 12 months of challenges – strong industry leadership is more important than ever.

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The new milk season looms as a period of consolidation for most Australian farmers but we are starting to see a concerning divergence of fortunes between those in south eastern Australia and those in Queensland, northern NSW and Western Australia.

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