Report predicts dairy farmer confidence to take a hit

While the drop-in-confidence forecast may be acurate, many of the report's other forecasts based on the National Dairy Farmer Survey (NDFS) earlier in the year, have been overtaken by recent events in the industry in WA, and more particularly in Victoria and Tasmania.

In February and March when WA dairy farmers were quizzed for the NDFS, 83 per cent had said they made a profit in 2014-15 and 90pc had said they expected to make a profit in 2015-16.

Looking to the future, 70pc of the WA farmers had believed the outlook was positive and 35pc had believed demand for dairy products would continue to grow, while 33pc were satisfied with the price they received for their milk or believed it would increase.

Only 2pc had a very negative outlook and none had said they expected to go out of business in the year ahead.

Since then Brownes Dairy, WA's largest and oldest milk processor, has told four suppliers it does not want their milk after their contracts end on September 30 and hinted more may go this time next year.

In the Eastern States, Australia's biggest dairy producer Murray Goulburn and the world's biggest dairy exporter Fonterra slashed farm gate prices and back-dated the cuts.

While it was too soon to quantify the impact of these events, "it is clear that farmer confidence will be significantly impacted, with flow-on effects for on farm investment and likely future growth", the Situation and Outlook report said.

In February and March 62pc of WA dairy farmers said they had invested in farm infrastructure in 2014-15 and the same number had said they intended investing in their farms in 2015-16, according to the NDFS.

Half of them had said they anticipated maintaining production levels while 43pc had said they expected to increase production.

As well, 35pc had planned to increase herd numbers.

"Amidst an outlook suggesting tighter - in many cases negative - margins, next season's milk production will depend heavily on seasonal conditions," the Situation and Outlook report said.

It predicted milk production, particularly in WA where "standout growth" in volume was up 6.9pc for the season to March, will fall overall this season.

"The strong growth in Western Australia now means there is excess milk in the state," Dairy Australia senior analyst John Droppert said.

His comment aligned with the view of Brownes' managing director Tony Girgis who last month said his company now received more milk from suppliers than it can sell.

But, as reported last week in Farm Weekly, processor Harvey Fresh has a more optimistic view and plans to double exports over the next three to four years.

Lion Dairy and Drinks also has a more optimistic view and is pressing ahead with a $43 million upgrade of its Bentley processing plant.

WA dairy farmers not affected by Brownes' cut back, or over east the Murray Goulburn and Fonterra price cuts, were "sitting ok but they are looking nervously on the horizon, scanning for impacts," Mr Droppert said.

WAFarmers' dairy section president and Dardanup dairy farmer Phil Depiazzi agreed.

"What's happened with Brownes and the price cuts over east means that some parts of the report have been superseded and are now out of date, but some parts of it still apply," Mr Depiazzi said.

"Unfortunately I think confidence will take a hit from what's happened," he said.

"The dairy industry is a bit like the chicken or the egg scenario - do we grow our farm business and increase production and hope the processors can grow theirs too to take the extra milk, or do we sit back and wait for them to move first and then try to catch up with our production?"

Mr Depiazzi said he expected some Brownes suppliers would still try to move across to Harvey Fresh or Lion when their contracts expired next year, but most, including those supplying the other two processors, would now "stay put" because of uncertainty about the future.

Apart from dairy farmers deferring expansion plans and non-essential farm infrastructure expenditure, another downside of the uncertainty was the potential loss to the WA dairy industry of some of its most experienced farmers, Mr Depiazzi said.

"What's happened may just be enough to convince some of those who are nearing retirement age that it's time to go, and they might not be replaced," he said.

According to the Situation and Outlook report, the typical WA dairy farmer is at least a year or two younger than Eastern States' counterparts, with an average age of 52.

At two tonnes per cow per year, the average WA farmer feeds his herd significantly more grain than all but NSW farmers (1.9 tonnes) and 63pc feed a moderate to high level of concentrates.

In the past year 35pc made changes to their feedbase.

Also in the past year, 60pc of WA dairy farmers made changes to deal with challenges and, in February and March when they were asked, 87pc said they had no intention of switching processors.