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Confidence Up But Challenges Remain

08 September 2010

AUSTRALIA - Most Australian dairy farmers remain confident about the industry despite continuing uncertainty around grain and dairy prices, although there are significant regional differences, according to Dairy Australia’s 2010 Situation and Outlook Update report released today (8 September).

Analysis undertaken by Dairy Australia as part of the Update has also revealed that international commodity prices have stabilised, with China’s increasing milk powder imports a driving force behind the continuing demand for dairy products.

Overall, confidence has improved from 67 per cent to 73pc since February when farmers participated in the National Dairy Farmer Survey.

Confidence in the national industry is higher among Victorian regions and South Australia, but lower in NSW, Qld and WA.

Most notable is the 30pc rise in positivity in Murray Dairy to 74pc. In contrast, the most significant fall was in WA.

In the Murray Dairy region, better prices, good winter rain and early season water allocations have boosted confidence.

On the other hand, WA farmers are coping with dry conditions, lower prices and rising grain and fertiliser costs.

Dairy Australia Strategy and Knowledge manager Jo Bills said 340 farmers who participated in the February National Dairy Farmer Survey were re-contacted in August to update any changes and outlook.

Ms Bills said while the season had started positively for southern farmers with good winter rainfall and opening farmgate prices 25pc higher than last season, wet conditions and static cow numbers were limiting production and volatile grain prices were creating uncertainty.

“While seasonal conditions and price signals are supporting confidence and production growth in southern regions, a lack of cows remain a major constraint,” she said.

“With limited replacement stock available, herd numbers are not expected to change much this season.”

At this early stage of the season, Dairy Australia expects Australian milk production to increase by 1 to 2 per cent to 9.1 to 9.2 billion litres for 2010/11.

“Grain prices have moved up sharply over the past two months in response to Northern Hemisphere supply problems,” Ms Bills said.

“While surveyed farmers expected to reduce their reliance on bought in feed over the coming 12 months, dairy farmers will be exposed to any further grain price hikes.”

Ms Bills said Dairy Australia’s May forecast of $5.00 to $5.40 per kg MS for southern full year farmgate prices remained achievable, based on current commodity prices and exchange rates.

As a result of the improved price outlook a significantly higher proportion of farmers surveyed in August, 62 per cent compared to 51 per cent, believe they will make a margin over input costs between July and December compared to January to June. This result is influenced by Victoria and Tasmania, where substantially more respondents believe they will make a margin over costs in the latter six months compared to the first six months of 2010.

Internationally, the most recent Dairy Australia spot commodity price report indicated a firming in prices in response to good demand and tightened supply. Ms Bills said China’s imports of dairy products were growing strongly, as consumers continued to demand imported product.

“China and Japan’s stronger currencies will improve affordability of imported dairy products, which is good news. Sustained Chinese demand will be critical to maintaining market balance,” Ms Bills said.

“The net effect of commodity price and currency movements on farmgate prices for Australian dairy farmers remains in the balance given the wider uncertainty affecting key economies and their ability to stave off recession (EU and US) or sustain growth (China and wider Asia).”



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