Stockfeed takes scoop from dairy margins

Stockfeed takes scoop from dairy margins

Dairy
Aa

Drought-driven high stockfeed prices could be costing Western Australian dairy farmers between three and four cents per litre more of their farmgate milk price margin this season than in previous seasons.

Aa
Western Dairy consultant Kirk Reynolds believes figures he is preparing will show high feed prices are costing Western Australian dairy farmers between three and four cents more per litre of milk produced than last year.

Western Dairy consultant Kirk Reynolds believes figures he is preparing will show high feed prices are costing Western Australian dairy farmers between three and four cents more per litre of milk produced than last year.

DROUGHT-driven high stockfeed prices could be costing Western Australian dairy farmers between three and four cents per litre more of their farmgate milk price margin this season than in previous seasons.

One high-geared dairy farmer near Capel, who depends on bought-in hay and a custom grain ration to feed his herd, said high feed prices cost his business $400,000 more last year and this year will be even worse.

Apart from coping with high feed prices, Darren Merritt, of Elgin Dairies, said he was also being offered three cents a litre less for the eight million litres of grade-one milk he produces a year.

Mr Merritt, a third-generation dairy farmer, comes out of a five-year contract supplying Harvey Fresh in January and is attempting to negotiate a new supply contract with the company.

But he said he was being asked to accept less for his milk from January when it is costing more to produce.

"Between the high feed costs and what we are being offered, we are being smashed," Mr Merritt said.

"It's not just us, there are others facing the same situation.

"A lot of dairy farmers went to the bank and extended their overdraft last season because of the high feed prices and it's no better this season."

Milking 750 cows all year round off a 250 hectare milking platform required him to buy in hay which cost $220-$300 a tonne, Mr Merritt said.

"We can't afford to buy it at $300 a tonne though because at that price we don't make a red cent," he said.

The recent Dairy Australia October Situation and Outlook report for the first quarter of the season acknowledged the dairy industry across Australia continued to be "weighed down" by high input costs.

The report estimated the September average cost of buying shedded cereal hay without weather damage had jumped 58 per cent compared to September last season and was now $340 a tonne in WA's South West region.

This was easily the biggest price hike in any of the 12 locations listed in the report, although hay prices of up to $500/t were listed for Gippsland in Victoria, $475/t on the Darling Downs in south-east Queensland, $458/t on the north coast of New South Wales and $440/t in central districts South Australia.

But the report indicated stockfeed wheat prices had fallen across all 12 locations comparing September this year to last year, with the price estimate of $268/t in South West WA down 23pc, equal second biggest fall along with central districts in SA.

While Western Dairy's farm business consultant Kirk Reynolds said he believed the actual size of stockfeed price movements for WA was less than listed in the Situation and Outlook report, he acknowledged there was no disputing high bought-in feed costs were eroding WA dairy farm profitability.

Mr Reynolds is finalising statistical information from the Dairy Farm Monitor Project on the WA dairy industry's production costs and the impact on profitability for a report he will present to Western Dairy's annual Spring Forum in Busselton on Thursday, November 21.

Part of a national data base involving 250 dairy farms, the project has been running for six years in WA and records a comprehensive spread of actual figures from volunteer farms tracking input costs, finance costs, farmgate returns, livestock sales, gross margins and return on capital.

"I haven't got the final numbers yet but I don't believe they will show the cost of oaten hay has risen quite as much as the Situation and Outlook report showed for WA and likewise I don't think the cost of grains has fallen as much as the report showed," said Mr Reynolds, who has been Western Dairy's 'numbers cruncher' for the Dairy Farm Monitor Project.

"But I'm pretty certain the numbers will show that increased feed costs are costing WA dairy farmers between 3c and 4c per litre more.

"Domestic demand has driven grain and hay prices again this year, they've stayed high because of the demand from the drought regions in the Eastern States.

"Because of the late break to the season most of our dairy farmers have had to buy feed in to get by and had no choice but to pay the going rate.

"Another factor to throw into the mix is that WA dairy farmers are competing with other livestock industries for the feed that hasn't gone over east.

"For example, the sheep industry has been buoyant and sheep farmers have had to buy in feed the same as dairy farmers," Mr Reynolds said.

He said any advantage farmers received from Coles and Woolworths supermarkets ending $1-a-litre milk, through Brownes Dairy passing back about 2c a litre to its suppliers and Lion Dairy & Drinks passing back about 4c a litre, had been negated by increased feed costs.

"You have to remember, it (passing more milk money back to farmers) was only on the supermarkets' own brands and only since February," Mr Reynolds said.

"Feed costs have eaten into dairy margins since last year."

While the Situation and Outlook report indicated national milk production was down 6.9pc in the first two months of the season and production cost increases were hurting across Australia, there was some marketing hope for farmers.

Total supermarket milk sales volume was down 1.3pc year on year to 1463 million litres as at September 15, but the retail value of milk sales grew 3pc year on year to $2466m, it said.

Similarly, year-on-year growth in the national retail sales value of cheese (3.4pc), dairy spreads (2.8pc) and yoghurt and dairy snacks (2.1pc) market segments outstripped volume growth of less than 1pc in each segment.

"While consumers have become less willing to spend money on 'non-essential' items, sales of premium priced dairy products have continued to drive value growth in the domestic market," the report stated.

Some consumers are willing to pay extra for dairy products perceived as a healthy choice while others will pay extra if they think the product enables them to support a cause, it noted.

Higher priced 'drought milk' launched by retailers in the Eastern States to help farmers was an example of the latter, with sales of private label milk growing 3.5pc in the first month 'drought milk' was introduced, it said.

WAFarmers proved the same point from 2014 with its WAFarmersFirst brand milk which successfully competed at a higher price against $1-a-litre supermarket milk on the basis that part of the higher price was passed back to help farmers at a time when the local industry was in crisis.

The growth in cheese market value was largely driven by boutique brand "deli cheeses" rather than bulk supermarket "chilled cheese" which comprised 82pc of the market on volume, the report noted.

Similarly with yoghurts and snacks, it noted increased sales values came primarily from premium quality artificially-sweetened products and probiotic yoghurts which were seen as healthier.

Aa

From the front page

Sponsored by