While financial challenges of that degree are not unheard of in the dairy industry, the longer-term concern of industry leaders is the erosion of production capacity and working capital that will likely result from the downturn.
Dairy industry figures put the average cost of milk production for Victorian, South Australian and southern NSW farmers at $5 per kilogram of milk solids, according to Australian Dairy Farmers acting president David Basham.
Opening milk prices in the region range from $4.31 to $5, with the reality for some farmers, particularly those with seasonal calving, that income will be as low as $3.90kg/ms.
“Some producers will be able to make short-term cuts to create a breakeven budget but that will likely lead to losses in the future,” Mr Basham said.
Agribusiness banking specialist Rabobank believes many milk producers have the equity levels to place them in good stead to weather the current storm.
It’s latest industry report, Oceania Dairy – Let’s Debt Serious, says much of the industry is in a position to source working capital, with Australian farmers having learning from previous cycles the importance of generating cash buffers and appropriate gearing levels to manage volatility.
“Over recent years, many dairy producers have taken the opportunity of improved farm profitability to pay down debt rather than expand,” said report co-author Michael Harvey.
However, he agrees the likelihood of eroded equity will mean producers will need to use the next upward price cycle to strengthen business structures.
“The rules of engagement have changed for Australian dairy and it is no longer enough to be a low-cost, pasture-based producer,” he said.
“Instead, there needs to be appropriate flexibility in the production system so costs can be scaled back when times get tough.”
Mr Basham said a number of farmers were already considering exiting, both younger producers under heavy financial stress and those near retirement.
Dairy industry figures put the average cost of milk production for Victorian, South Australian and southern NSW farmers at $5 per kilogram of milk solids, according to Australian Dairy Farmers acting president David Basham.
Opening milk prices in the region range from $4.31 to $5, with the reality for some farmers, particularly those with seasonal calving, that income will be as low as $3.90kg/ms.
“Some producers will be able to make short-term cuts to create a breakeven budget but that will likely lead to losses in the future,” Mr Basham said.
Agribusiness banking specialist Rabobank believes many milk producers have the equity levels to place them in good stead to weather the current storm.
It’s latest industry report, Oceania Dairy – Let’s Debt Serious, says much of the industry is in a position to source working capital, with Australian farmers having learning from previous cycles the importance of generating cash buffers and appropriate gearing levels to manage volatility.
“Over recent years, many dairy producers have taken the opportunity of improved farm profitability to pay down debt rather than expand,” said report co-author Michael Harvey.
However, he agrees the likelihood of eroded equity will mean producers will need to use the next upward price cycle to strengthen business structures.
“The rules of engagement have changed for Australian dairy and it is no longer enough to be a low-cost, pasture-based producer,” he said.
“Instead, there needs to be appropriate flexibility in the production system so costs can be scaled back when times get tough.”
Mr Basham said a number of farmers were already considering exiting, both younger producers under heavy financial stress and those near retirement.
