Raining on MG’s parade: the shrinking milk pool more serious than the big wet

bigwet

Here’s something new: wet weather in parts of Victoria now means farmers must be paid less for their milk.

MG came out with another adjustment to the milk price on Thursday. In a nutshell, the MSSP (aka the “Clawback”) has been put on ice. At the same time, the best price MG expects to be able to offer farmers this season (called the “closing price”) has been revised down by a little bit more than the “clawback of the clawback” returned to farmers’ pockets.

I must admit that while I was expecting the clawback of the clawback, I wasn’t expecting MG to revise down the forecast closing price because analysts are cautiously optimistic that the global market for milk is recovering. It’s supposed to be all up from here.

The problem is MG forecasts its milk intake to be 20 per cent lower this season and, after stuffing warehouses full of surplus product last year, it now doesn’t have enough product to sell. Conceding losing 350 million litres to retirements and competitors, MG blames the remainder of the loss on wet weather. The reality is that the weather is just one part of the equation. The main reason production is down is man-made and does not rate a mention by MG: the low milk price.

Low milk prices mean less milk production
The low milk price hits production in two important ways:

  1. Cows are sold, leaving fewer in the herd producing less milk per farm
  2. Cows are fed less grain and produce less milk per cow

Fewer cows in the dairy
The grim reality is that most Victorian dairy cows are worth more at the saleyards than in the dairy this year. Farmers culled their herds during last year’s drought and, now, many struggling to pay the bills have culled hard again.

Less milk-producing feed
The cows that remain in the herd are being fed less grain than last year, simply because it’s not viable. Here in Gippsland, we are paying $310 per tonne for supplementary feed. The rule of thumb is that a kilogram of grain returns a kilogram of extra milk.

Right now, my own farm is getting 26.9 cents per litre during Spring (while most MG suppliers will be getting even less), so we lose roughly 4 cents per litre with every extra kilo of grain. We just can’t afford to produce more milk beyond what’s needed to service our overheads and keep the cows healthy.

It’s not actually that wet for MG – at least, not everywhere
The other mystifying statement about the claim that wet weather is the cause of the loss of production is that, actually, large areas of MG’s supply area aren’t experiencing record wet conditions and some areas are having a bumper season.

wetsoilmoisture

Source: Bureau of Meteorology

Yes, the south-west of the state, South Australia and parts of Tasmania are having a terribly wet season but Gippsland and the north are not, if you are to believe the Bureau of Meteorology.

Dairy Australia figures from last year show the production of each area:

Financial Year 2015/16
RDP Litres %
Dairy SA 514,039,216 5%
DairyTas 882,965,394 9%
DairyNSW 792,948,581 8%
GippsDairy 2,006,004,931 21%
Murray Dairy 2,267,951,005 24%
Sub-tropical Dairy 550,148,921 6%
Western Dairy 387,147,057 4%
WestVic 2,139,492,819 22%
Grand Total 9,540,697,924 100%

Of these, it’s only fair to remove DairyNSW, Sub-tropical Dairy and Western Dairy because these areas are either not collected by MG or have special pricing not affected by the announcement.

If you assume all of Dairy SA, DairyTas and WestVic are hit by the wet but GippsDairy and Murray Dairy are okay, the picture is not nearly so dire. In fact, the source of 55% of the litres in MG’s supply area isn’t too wet at all!

wetnotwet

So, yes, the wet is a problem – an especially big problem for farmers in the south-west who have my sympathies – but unlikely to be anywhere near as big a problem as last year’s drought, which affected pretty much the entire collection area.

If anything, the processor most affected by the weather may well be Warrnambool Cheese & Butter and it increased its milk price to $5.00 per kgMS in late September. The MG milk price (without the now suspended MSSP) is now $4.60 per kgMS and the forecast is for $4.70 by the end of the season. Ouch.

The bottom line
It all boils down to this: low milk prices lead to lower milk production – even in a reasonable season – and make it even harder for farmers to cope with difficult seasons.
What Thursday’s announcement from MG reveals is that farmers now face a vicious cycle, given the expected loss of 20 per cent of the co-op’s milk supply since last season.

wetviciouscycle

The challenge for MG’s board now is to stop another closely-related vicious cycle from spiralling out of control, as it did for its once-great competitor co-op, Bonlac. That would be a dreadful outcome for our entire industry.

mgviciouscycle

Floods, bogs and mud, mud, mud

Flood 22 July

Partial view of the flood from the house this morning

The rain came…again. Yesterday, Yarram airport received 48.5mm and today, all the roads to town are closed, a third of the farm is cut off with at least another four paddocks underwater and the car is still sitting bogged in the driveway. Thankfully, the house is nice and high, so no sand bags needed (but thanks for the offer, Julie and Doug)!

Most of this is a temporary inconvenience. The good news is that the local rivers are short and empty into the sea quickly, so the roads should be open again in the next day or so. More important is the longer lasting issue of saturated pastures and muddy tracks.

Saturated pastures (they were already saturated before this jolly east coast low pressure system decided to pay us a visit) are very vulnerable. The damage done now by cows’ hooves will cause compaction of the soil so that, come summer, water will run off rather than soak in and roots will find it harder to penetrate the soil, exposing them to heat and denying them sub-surface moisture. If you’re a gardener, you’ll understand!

Muddy pastures and tracks are also a perfect recipe for lameness and mastitis, both painful conditions that are difficult and expensive to treat.

Of course, sopping wet soil is also no good for growing grass, which means we must step up our imported feed. This means more cost, long days and heavy tractors on fragile pastures.

Those weather gods need an urgent performance review so they can refocus on their KPIs!

Timing makes good suppliers golden

Healthy oats where it's not too wet

Healthy oats where it's not too wet

Too much water has stunted these oats

Too much water has stunted these oats

On Monday, I realised a fantastic opportunity was about to pass me by. For months now, most of our newly sown pastures have sulkily refused to grow in their sodden paddocks. The wet interferes with their ability to take up nutrients from the soil and also prevents me getting fertiliser on. Each of the massive fert trucks weighs 8000kg unloaded! Not pretty if they get bogged.

All the same, I decided to take a walk and survey the scene up close. I was astonished to find three of the paddocks were just trafficable but, with 25 to 30mm of rain forecast over the next few days starting in the next few hours, they wouldn’t be for long. A quick call to fertiliser supplier Robert had the urea and potash on in two hours.

Timing is everything in farming because we’re at the mercy of the very temperamental Mother Nature. That’s why we rely so heavily on the responsiveness of our suppliers; from the people who plant the seed just in time for a break in the weather (thanks Wayne) to the vets who rush to the aid of our cows in an emergency.

Thanks guys – you are appreciated.

The whingeing farmer

Farmers are infamous for never being happy with the weather. For years, we’ve been battling awful conditions – unreliable or non-existent autumn breaks, short springs and searing summers. The one blessing has been warmer and therefore more productive than normal winters.

This year, though, has been one out of the box. The landscape remained a verdant green right through summer and, with a precious bank of water in the soil, I took the opportunity to convert plenty of pastures from annual to perennials and when the “whole hog”, fully cultivating beautiful seed beds.

My gamble may still pay off but right now, the strategy has come back to bite me. The sun refuses to shine, the rain continues and that bank of soil moisture has been continually topped up to the point that very little of the new pasture is trafficable at a time when it desperately needs fertiliser and a trim. We may not be able to let the cows into some paddocks until spring.

So, as I type this post on a cold, wet, sunless day, I’m afraid I live up to the stereotype of the whinger. I have a good excuse but no good reason –  exposed to commodity price cycles, currency fluctuations, all the normal business hazards and mother nature herself, farming is innately a risky business but still we choose it as a way of life. After all, an affinity with mother nature is what binds us to it.

Sowing by hand

Sowing seed by hand

The only way to get seed onto the paddock

Zoe sows the paddock

Sowing by hand is a novelty

When the going gets tough, the tough get going! Paddock number 2 was so wet when it was time to sow that part of it was just not trafficable. Now that the rest of the seed has shot, we decided we’d better fill the blank spot with seed. It’s about the size of a quarter-acre house block and, normally, we’d mix the seed in with some fertiliser and spread it behind the ute but it’s still so wet, you couldn’t even ride over it with a quad bike.

So, we decided to do it the old-fashioned way: by hand. It was fun, even as the cockatoos eyed off our bounty!