DAIRY Australia’s Situation and Outlook Report released on Wednesday was a mixed bag, as the 2022/23 season opens with large numbers on both sides of the ledger.

Early announcements of opening milk prices have set new records, backed by stiff competition for milk and robust global markets.

Meanwhile, fertiliser, fuel and grain prices are on the up amid the reality of a war in Europe, renewed geopolitical tensions and ongoing disruptions associated with COVID-19.

After successive seasons of recovering profitability, the net effect of these rapid and substantial changes on margins was a key question as farmers and processors try to plan ahead in a volatile market.

Despite some market volatility, data from the 2022 National Dairy Farmer Survey indicated profitability has continued to improve, with 88 per cent of survey respondents reporting an operating profit in 2020/21, and 90 per cent expecting to do so in 2021/22.

The report also revealed that 82 per cent of Australian dairy farmers were confident about the future of their own businesses (up by two per cent on 2021), while 68 per cent of farmers were feeling positive about the future of the industry (up four per cent).

Dairy Australia industry insights and analysis manager, John Droppert, said the report confirmed that dairy commodity markets remained strong, driven by a combination of tight supply, robust demand and buoyant soft commodity values.

The report indicated that ongoing growth limitations and heightened margin risk were expected to offset strong milk prices and favourable seasonal conditions, resulting in a comparatively flat milk pool totalling 8.6 billion litres.

“The 2022/23 season will be marked by rising numbers throughout the supply chain – from production costs to farmgate prices, from commodity values to food expenditure,” Mr Droppert said.

“Meanwhile, labour shortages remain a significant constraint, while high beef prices and soaring land values have enticed farmers and farmland away from dairy.”

Domestic consumption volume has shifted from grocery to foodservice as the effects of the pandemic recede and more consumers are out and about.

Meanwhile, the value of dairy products sold through supermarkets has increased.

The report also finds that Australia’s major competitors are experiencing negative or slow growth in milk production, driving up demand and competition.

“This theme is likely to be tempered by an absence of growth in milk production,” Mr Droppert said.

“Nonetheless, robust balance sheets after several profitable years might just mean that the volatility accompanying such giddy numbers is something the Australian dairy industry is well-placed to tackle.”

The report covered in detail, subjects such as feed, fertiliser and fuel, global fundamentals and also the domestic market, especially covering how the easing of COVID-19 restrictions has impacted the industry.

The National Dairy Farmer Survey (NDFS) is conducted each year as a means of tracking dairy farmer sentiment, views on industry challenges and own business intentions.

It provides a robust set of data to support or challenge anecdotal and other information sources, and in 2022, 700 farmers were interviewed nationwide for this survey.

In 2021, the NDFS told an interesting story of significant, widespread improvement in farmer sentiment and farm profitability, while milk production remained largely stable.

The 2022 survey results continue to build on this story.

Following three years of improved profitability, many farmers were in a position to make choices that suit their personal or business aspirations, with production growth not necessarily being the top priority.

The trends over the past ten years further highlight the high degree of variability in farm business responses to favourable operating conditions.

Encouragingly however, whilst growth might not be the top priority right now, the latest data suggests a strong proportion of farmers harbour medium term expansion aspirations.

WestVic Dairy (south-west Victoria) and Subtropical Dairy (Queensland and northern New South Wales) have shown the strongest improvements on 2021 results, while DairySA (South Australia) is the only region reporting lower confidence in the industry future than they were last year.

WestVic confidence in the industry’s future has continued its upward trend from 2019 and is now 10 points higher than a year ago (73 per cent).

A high 84 per cent of respondents were positive about their own businesses, thanks to favourable seasonal conditions and milk prices.

The vast majority of WestVic respondents made an operating profit in 2020/21 (92 per cent) and a similar proportion expected to do so in 2021/22.

Most farmers are maintaining their herd sizes for the year ahead and are focusing on farm maintenance or investing in technologies to improve their business operations.

The report can be found at dairyaustralia.com.au/sando.