Bad moon rising?

NoEvil

Hear no evil Pic credit: Apartline.de

It’s no secret, the last couple of years on the farm have been bloody tough. The 2015 drought cut deep here, only to be followed by the dairy debacle of 2016. Now the historic agreement to sell Australia’s last big co-op has us in unchartered waters.

We just need a bit of a breather to recover and keep our heads above water.

During the last two years, we’ve closed down spending as much as possible. We haven’t sacrificed feeding cows or looking after our soils but, beyond that, if it could wait, it did.

It means we have some maintenance to catch up on, especially the farm laneways that the cows use to get to and from their paddocks. Maintaining tracks is expensive and we have the equivalent of a very good year’s profit to make up as well as new debts to repay. It hasn’t been a very good year yet.

So, you can imagine how it felt when I heard Freshagenda’s revised forecast for next financial year, which basically said milk prices are headed down again. Not good. Demoralised and, honestly, rather cranky.

But is there really anything to worry about?

After all, a year (or even half of one) is a long time in dairy commodity pricing. Freshagenda notes there are plenty of variables, like exchange rates, the weather in New Zealand and even the Russian ban on dairy products, that can all still make a big difference to the outcome.

This farmer’s left wondering whether it’s safe to let the moths out of the cheque book for that much needed maintenance.

If I spend too much, there might not be enough left in the kitty for another tight year. If I keep the hatches battened down, the tracks will cost a fortune to bring back to square one in another two years’ time.

While all of that is a big deal for me, others argue there’s much more at stake. There’s the psychological impact on farmers for a start.

If social media is any guide, plenty of farmers have had a gutful of industry turmoil and tight times. Some of them will curl up into a little ball, some will grin and bear it, while others will simply walk away.

I’ve heard farmers suggest it’s irresponsible to publish something like that when the industry is on a knife edge. Others worry that the processors will use commentary like this to jawbone the farmgate milk price down.

Either way, they argue, it could help to dampen milk production for another year, reducing Australia’s ability to be an efficient, reliable exporter.

With all this in mind, it’s not surprising Freshagenda has copped a bit of flack. Its founding couple, Jo Bills and Steve Spencer, shouldn’t be surprised. Dairy Australia famously stopped issuing similar forecasts after similar blowback.

Asked for comment by Milk Maid Marian, DA explained its approach this way:

“Dairy Australia exists to provide our farmer stakeholders with the most accurate and up to date information so they can make informed decisions around their business practices.”

“Our role in this space is to provide an unbiased view on current market trends and drivers, through publications like the Situation and Outlook report.

“Milk pricing varies greatly from processor to processor and farm business to farm business. Our approach is to provide the information and insights that farmers can apply to their own context, and draw much more meaningful conclusions than an industry ‘average’ price.

“DA moved away from providing an exact prediction on milk pricing for a number of reasons, these include:

–          The risk of eroding competition for milk and unduly influencing market decisions made by processors.

–          The industry is now in an environment where there is significant variation in processor prices meaning that no price will ever apply to everyone.  This has not always been the case.

–          Milk pricing is extremely complex and there are too many variables for DA to confidently predict a single/universal price.”

It provides all the ingredients for a powerful argument against the proposed $2 million milk price index that seems to have gone very quiet.

On the other hand, Freshagenda is not the only one pointing to a softening in global dairy commodity prices. A quick Googling will reveal analysts from around the world coming to the same conclusion that this cycle is already turning. The processors all know it and can point to any amount of evidence for a lower new season’s price if they want.

Freshagenda has simply put that into context for Australians.

Yes, they’ve also put a number on it, or “numbers” I should say as they’ve actually offered a fairly broad price range that comes with the expected caveats regarding changing conditions.

When the dairy debacle of 2016 unfolded, it caught farmers by surprise. Many asked why they weren’t warned. We can’t have it both ways.

The question is: would you want to know if there’s a bad moon rising? At spreadsheet-time, yes, I would.

 

 

Why good news in the budget for scientists is good news for dairy farmers

Much to my relief, the word is that the federal budget has not cut spending on agricultural research and development. Yes, ag R&D funding has been steadily eroded and needs to be restored but I was almost certain it would be slashed. Earlier this year, a review of the Rural Research and Development Corporation by the Productivity Commission flagged a dramatic reduction in funding for agricultural research.

Why do I care? Because we need to farm smarter all the time in order to make a living. The farm I run now bears almost no resemblance to the farm of my childhood 30 years ago. It’s the same 500 acres but we milk 50 per cent more cows and each produces around 55 per cent more milk than her ancestor did in the 1980s: a huge leap in productivity.

Although these numbers are impressive, we are far from exceptional. According to Dairy Australia, Victoria’s raw milk production peaked in 2001-02 at 7.4 billion litres – more than double the 3 billion litres produced in 1980-81. Yield per cow also increased from 3,012 litres in 1979-1980 to 5,864 litres in 2008/09.

We achieved these gains scientifically. Thanks to Target 10 and Feeding Pastures for Profit, we make much more effective use of our pastures, while programs like “Fertilizing dairy pastures” showed us how to grow more grass with the efficient use of valuable nutrients like phosphorous and nitrogen.

Today, we are learning how to cope with new challenges brought by climate change: how to keep cows cool, new more drought-resistant pastures and declining fertility.

We must also be realistic about the rise of new competitors. Developing countries including China, Mexico and the Middle East are buying record numbers of Australia’s breeding stock in an attempt to fast-track the growth of fledgling dairy industries. India is also racing to become a dairy giant.

Australian dairy farmers do not enjoy the support lavished on our northern competitors. We can compete only because we are low-cost producers.

Although declining terms of trade mean we aren’t any richer than my father was, we are still on the land – thanks to government and farmer investment in agricultural R&D.