Improved milk price forecasts, better weather conditions and a decline in milk production in other Australian regions has seen confidence improve for Tasmanian dairy farmers.
Dairy Australia released its latest Situation and Outlook report on Wednesday, which showed Tasmanian farmers welcomed a return to more normal conditions in 2016/17 after a difficult 2015/16.
The report showed milk income fell with a lower average milk price, but livestock income was higher as many farmers culled their herds in response to lower milk prices.
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A return to more usual seasonal conditions and lower input prices in 2016/17 saw total operating costs drops from those reported in 2015/16.
“This was mostly due to a significant reduction in purchased feed costs due to both lower prices and a reduced amount of purchased feeds. Home grown feed costs were also lower,” the report said.
Dairy Australia predicts 2017/18 milk prices to close up to 15 per cent higher than the preceeding season.
“Despite some concerns around grain prices, prospects for the 2017/18 season remain positive, with average to above average seasonal conditions and rainfall expected to continue,” the report said.
“Combined with some cautious optimism regarding milk prices EBIT and overall milk production are expected to improve,” the report found.
Dairy Australia senior analyst John Droppert said dairy farmers in the southern states of Tasmania, Victoria and South Australia had enjoyed more favourable conditions recently, but results still reflect the volatility of the past 12 months.
“[The 2016/17 season] was undoubtedly a tough season for cash flow but the ability of farmers to adapt, together with generally lower hay and grain costs and better weather conditions, has helped many to generate a more positive financial result than they may have anticipated,” Mr Droppert said.
While many farm businesses are using surplus cash for debt reduction or expenses incurred from last season, the report found 89 per cent of surveyed farmers were optimistic for the 2017/18 season.
The combination of contained input costs and improvements for farmgate milk prices points to expected growth in milk volumes in the southern states.
“Dairy Australia’s forecast for 2017/18 milk production remains a growth range of between 2 and 3 per cent on the 2016/17 total of 9.02 billion litres,” Mr Droppert said.
“This implies a forecast total of around 9.2 billion litres for 2017/18,” he said.
International commodity prices show balance between supply and demand and the situation has not changed over the past few months.
“Butter prices are near record levels, whilst skim milk powder values continue to be suppressed by the large volumes held in European public storage,” the report found.
“Most other products remain somewhere closer to ‘average’, and the combination of reasonable demand and re-emergent supply suggest they are likely to remain so,” the report said.