Dairy Farm Monitor Report highlights challenges
5 September 2018
The 2018 Dairy Farm Monitor Report has found that return on total assets has remained constant across Victoria on average, despite average profit being the fifth lowest in the 12-year history of the project.
Agriculture Victoria Farm Business Specialist Claire Waterman said the results reflect the challenging seasonal conditions, despite improved milk prices.
“Return on total assets (RoTA) remained constant at 2.5 per cent across the state on average, however, there is notable variation between the regions.
“Average profits remained comparable with the 2016-17 year with whole farm earnings before interest and tax (EBIT) decreasing to $159,000, compared with $167,000 reported in 2016-17.
“In 2017-18, 80 per cent of participants (60 of the 75 farms) recorded a positive RoTA, with a range of negative 5.3 to 10.6 per cent,” she said.
“While fewer farms recorded a positive result compared with the previous year (67 of the 75 farms), the range was narrower this year.”
“When interest and lease costs are considered, farm profits fell to their fifth lowest level in the project’s 12-year history at $49,000 as measured by net farm income and return on equity at 0.4 per cent.”
Ms Waterman said all Victorian dairying regions have had challenging seasonal conditions in 2017-18, with reduced rainfall compared to the previous year resulting in decreased home-grown feed as a percentage of ME consumed.
“Farms fed additional imported fodder, at generally higher prices, and utilised their feed reserves to manage the long, dry, hot summer. As a result, purchased feed and agistment costs increased by 16 per cent across the state, from $1.55/kg MS in 2016-17 up to $1.80/kg MS in 2017-18.”
She said while the season was challenging, milk price improved by 15 per cent on average to $5.81/kg MS, up from $5.07/kg MS and was the seventh highest price in the 12-year history of the project.
Ms Waterman said farmers’ expectations about their business returns for the 2018-19 season were cautious.
“While over two-thirds of farmers predict their business returns will improve, many participants were concerned about seasonal variability in the coming year. Input costs were the major issue identified for the coming 12 months, while milk price and climate variability were also identified as concerns over the longer term.”
The Dairy Farm Monitor Project provides farm level data relating to dairy profit and production in Victoria and was produced for the twelfth time this year. The project is a joint initiative between Agriculture Victoria and Dairy Australia.
The 2017-18 season presented challenges for farmers in the North, yet it was better than the previous year with good pasture growth, higher milk production and improved milk price. Rainfall was 92 per cent of the long-term average, however, it was boosted by a large rainfall event in December. The conditions turned hot heading into summer and autumn, and on average farms used more irrigation allocations, purchased additional feed and utilised their fodder reserves.
Farmers who acted early in the season were rewarded as the price of water and feed increased towards the end of the year. Irrigators received 100 per cent allocation of their high reliability water shares and the median price of temporary (allocation) water was $110/ML. The 11-year average of allocation water price on the Greater Goulburn system is $164/ML in real terms.
A 14 per cent increase in milk price to $5.87/kg MS supported a positive return on total assets of 2.5 per cent and EBIT increased to $185,000, the sixth highest recorded in the 12-year history of the project. Return on equity returned to positive values, posting 1.2 per cent in 2017-18 and net farm income was $73,000.
The South-West region experienced the extremes in seasonal conditions with a wet winter before a long, hot, dry summer. Farmers supplemented their lower pasture production with additional fodder purchases and utilised their fodder reserves. While milk price improved eight per cent up to $5.80/kg MS, it didn’t compensate for the steep rise in feed costs.
In contrast to the other two regions, south-west profits decreased in 2017-18. Earnings before interest and tax halved compared to the previous year, falling from $259,000/farm to $147,000/farm. Return on total assets fell from 4.2 per cent to 1.9 per cent. Average net farm income also halved to $24,000/farm and return on equity to negative1.1 per cent.
Milk price also recovered in Gippsland this year and increased by 19 per cent to $5.74/kg MS, up from $4.84/kg MS last year, following three years of continual lower prices. However, as the dry conditions persisted, farmers utilised their fodder reserves and purchased additional fodder; more than they were planning to.
Average EBIT increased slightly from the previous year to $144,000/farm and net farm income increased to $50,000/farm. These results ranked as the seventh highest over the history of the project. Return on total assets was the highest of all the regions in 2017-18 at 3.0 per cent and return on equity was 1.0 per cent on average.
Many participants were concerned about seasonal variability in the coming year. Input costs were the major issue identified for the coming 12 months, while milk price and climate variability were identified as concerns over the longer term.
Learn more and download the 2018 Dairy Farm Monitor Report.
Contact Name: Mel Curtis
Contact Number: 0402 001 853
Categorised under: Agriculture