The calm before the perfect storm for one nervous dairy farmer

A perfect storm is brewing. Collapsing global dairy markets, a fodder shortage, and a strengthening El Nino.

Milk price uncertainty

Just across the ditch, NZ dairy farmers are drowning in despair after the dominant Kiwi milk processor, Fonterra, this week cut its farmgate price forecast to $3.85 per kilogram of milk solids, down from $5.25. The announcement followed hot on the heels of yet another set of disastrous Global Dairy Trade auction figures.

The Global Dairy Trade auction results of 4 August

The Global Dairy Trade auction results of 4 August

 

Most NZ milk is sold via the Global Dairy Trade auction and an article from Stuff.co.nz neatly explains the situation for NZ dairy farmers:

DairyNZ chief executive Tim Mackle said the news was grim, but not unexpected and many farmers would now be in survival mode.

The drop in milk price would result in $2.5 billion dropping out of rural economies, Mackle said. 

“Milk price is now half what it was in 2013/14. We calculate around nine out of 10 farmers will need to take on extra debt to keep going through some major operating losses,” Mackle said. 

“For the average farmer you are looking at covering a business loss of $260,000 to 280,000 this season but for many it will be a lot more than that.”

It would have a big impact on rural servicing businesses. Drops like this had a cascading effect through rural economies, Mackle said.

DairyNZ analysis showed the average farmer now needed a milk price of $5.40 to break even.

Just a few months ago, dairy industry analysts were forecasting a return to better international commodity prices at the end of this year but opinions seem to be changing, suggesting that there will be not one but two years of pain ahead.

What does this mean for Australian dairy farmers like me? Well, the largest processor of Australian milk, Murray Goulburn, forecast a closing (or end of year) price to farmers of $6.05kg of milk solids just before its partial ASX float. It hasn’t yet revised that closing price but its biggest competitor, Fonterra Australia, says it will announce the results of its own July price review this week.

The big difference between NZ dairy and Australian dairy is this: NZ exports 95% of the milk it produces, while Australia exports just 38% of its milk.  The Australian domestic milk market is much more stable than international commodity prices, so we don’t get the dramatic highs and lows of Kiwi farmgate milk prices. At least, that’s how it’s meant to work.

I’m certainly relieved to have locked in a bottom to the price we are paid for 70% of the farm’s milk. We now supply Fonterra Australia, which accepted our bid to join “The Range” risk management program that sees our price bob about between an upper and lower pair of prices. If the milk price does collapse, we’ll go backwards at a rate of knots but will still be farming next year.

El Nino: more feed needed and less to go round

Sadly, I can’t lock in even a portion of our rainfall. With a strengthening El Nino predicted to persist into next year, the Bureau of Meteorology calculates just a 30 to 35 per cent chance of at least average rainfall for our region from August to October. That means we’re likely to have less surplus Spring grass to conserve as hay and silage. It’s a double whammy because the El Nino also suggests we’re likely to need more fodder than normal over summer and autumn.

To top it off, hay prices are already unaffordable and quality hay is scarce.

The perfect storm

In other words, we’ll need more conserved feed than normal with less than usual to make ourselves and, very likely, starved of cash flow to pay for extra loads from far flung places.

A milk maid’s survival plan

So, what do we do? We’ve already begun adapting by selling off our less productive cows to limit our demand for feed. Thankfully, cattle prices are high right now and the sale of those 13 cows will feed the rest of the herd for three weeks. I’m also spending more time hunched in front of the computer looking for any opportunities to cut costs and keeping an eagle eye on our budget.

A brainstorming and planning session with agronomist, Scott Travers, has helped us plan for extra on-farm cropping with brassicas over summer.

Cows grazing forage rape

The cows will be grazing more brassicas this summer

We’ll be planting several types of brassicas (which belong to the same family as broccoli and cabbage) that mature at different times in a bid to have leafy greens available for the cows throughout summer. The big risk, however, is that the weather will be too tough, even for summer crops.

To deal with this, we are planning another infrastructure project inside the bounds of our new kangaroo fence. Water from our freshwater dam will be mixed with effluent from the dairy yard and pumped over the crop paddocks. It will help the brassicas survive a dry sprummer and summer then help re-establish pasture during an unreliable autumn.

This modest irrigation system will cost money but it will slash the cost of spreading the effluent and should pay for itself quite quickly during a year when visits from the hay truck could spell the difference between make or break.

A perfect storm is brewing and, here on the farm, we are trimming our sails to suit.

 

9 thoughts on “The calm before the perfect storm for one nervous dairy farmer

  1. Reblogged this on Clover Hill Dairies Diary and commented:
    One should never underestimate the power of the quiet achiever to pose the courageous questions and drive the direction of conversations the world need to have

    Everywhere I go Australian agriculture’s most admired quiet achiever Marian MacDonald keeps popping up doing what she does so well – Envisioning the future we all want to have, sowing the seeds of change and empowering the movement in Australian agriculture

    Last weekend I was lent a copy of Bill Hampel’s ‘Against the Grain’ http://www.amazon.com/Against-Grain-Farmers-Climate-Change/dp/1925078507 and was not surprised to see Marian’s story starting on Page 39

    “a love of nature and farming and a thirst for knowledge’ drives this little pocket rocket
    “There is a refreshing honesty about this life, everything you do makes a difference. The joy of being outside with the animals is something that I can’t put into words. It’s where I really feel at home”

    Read her latest blog and you too will see why people like Marian as so important and why they are celebrated

  2. Pingback: The calm before the perfect storm for one nervous dairy farmer | Clover Hill Dairies Diary

  3. Wait till MG can’t keep up and pull the price ,done it once will do it again , must keep share price looking good $ 1.77 not looking good

  4. WE as farmers have the ability to protect ourselves from greedy processors.But to do it we need unity and a leap of faith from relying on the same old same old stories from the processors

    • Yes we as farmers can Marian.
      Pains me to say it but in recent history it was one of the few sensible comments by a udv representative.
      Tyran Jones I think as vice president said that farmers have around eighty percent of the capital involved in dairy and a hundred percent of the risk.
      Why should we tolerate this?
      Because we let processors dictate the terms of trade.
      How long since you’ve heard of a processor making a loss or borrowing heavily to cover operating costs?

  5. MILK PRICE CLARITY
    Farm business margins have never been tighter with farm costs rising faster than the milk price. We must now, more than ever, know exactly what our farm milk price is. We need to be able to accurately compare MG’s performance against the other processors and to be able to manage our own farm business budgets and our margins. For too long the opening milk price has been all about smoke and mirrors. It always seems to be a game played between processors with little regard for farmers who have been left confused when it comes to their own real milk price. This must change now that MG is serving two masters. We should implement what the UDV has been advocating for – a change in milk pricing policy that is clear and accountable.

    Very few farmers actually receive, in real terms, the generic announced opening milk price and what I am suggesting is that when MG announces its opening average milk price, it also does the following: It provides every farm with its own individual average weighted opening milk price matched to the individual farm’s milk supply curve. At the end of the season, when MG states its generic closing price, each farm should again receive its own individual average weighted closing milk price. This would also, for the first time, force all processors to implement the same clear and transparent milk payment system so that farmers can accurately compare processor against processor.

    • Bernhard this is something that has been called for over many years.
      Asking isn’t working.
      Telling politicians and representative bodies isn’t delivering either.
      It’s time to demand transparency from all pricessors

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