![Neil Kroehn has made decision to leave dairy farming. Neil Kroehn has made decision to leave dairy farming.](/images/transform/v1/crop/frm/silverstone-agfeed/2006917.jpg/r0_0_600_402_w1200_h678_fmax.jpg)
DAIRYFARMERS across South Australia have battled low milk prices for the first half of the 2012-13 season.
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Price indications are not looking down, but they are not looking up either.
Having to contend with prices as low as 30 cents a litre, some farmers have been forced to offload cattle or – in some cases – consider selling up.
The initial drop in opening southern farmgate prices was attributed to a number of factors, among those domestic pricing pressure from major retailers, a global glut of dairy stocks and a strong Australian dollar.
Murray Goulburn has been the only processor operating in South Australia to announce step-ups, which came in August and October.
Many of the State’s dairyfarmers believe they need to be paid between 45 cents a litre and 50c/L for their milk to remain viable and grow their business.
The situation looked positive in Fonterra’s fortnightly GlobalDairyTrade auction at the start of August when the GDT trade weighted index jumped 3.5 per cent, which continued as it was up 7.8pc, 6pc and 2.4pc in the following auctions.
Rabobank’s December Dairy Quarterly said the slow recovery that began in August had continued into this quarter, but failed to gain strong legs.
“Upward pressure on prices was created in part by the first contraction in milk supply export regions since early 2010,” the report said.
“The fact this contraction failed to generate a stronger rise in prices suggests consumption was weaker than anticipated and key buyers have accumulated solid forward coverage.”
The report also states milk production growth in key exporting regions – namely Europe, the United States, New Zealand, Australia, Argentina and Brazil – is expected to continue to fall below prior year levels through the first half of 2013.
“While current buyer inventories will provide temporary protection from supply shortages, the market will inevitably tighten further if there is even a modest improvement in demand for imports from key buying regions, which appears highly likely,” it said.
“But the timing and vigour of the market peak has likely been pushed back and softened by a weaker economic outlook than envisaged three months ago.”
Interlact Australia technical manager Neil Lane agreed with Rabobank’s assessment about prices not gaining “strong legs”, saying there had been a lot of “sideways movement” in world dairy prices.
“There’s not a lot of upside to the initial forecast, but not a lot of downside either,” he said.
“A good example is the GDT auction last week which was up 1.1pc, having dropped 2pc the previous fortnight.
“US Futures is doing something similar – it crashed, came up and didn’t get back to where people thought it should and is going sideways now.”
Mr Lane said as a result there was no real upswing in prices looking ahead to next year.
“It may be a bit better, but it’s not looking as though there will be a significant upswing in prices back to where they were last year or the year before,” he said.
“We will see step-ups, but they’re part of the forecast price anyway.
“As the companies lock away the profits through the year, they will pay more step-ups – the fundamentals suggest there’s still something to come.”
Despite the tough times, Mr Lane was positive about long-term prospects.
He urged farmers to focus on what they could control, such as on-farm costs.
“The industry got ahead of itself and produced more milk than even China could take,” he said.
“These markets don’t have bottomless pits of money to buy product.”
Recently, South Australian Dairyfarmers Association president David Basham told Stock Journal the farmgate milk price at the moment was “appalling”, and that many farmers struggled as a result.
“It is a very difficult time for farmers,” he said.
While he was careful not to go into too much detail, he did say SADA was trying to “think outside the square” on the issue of milk price.
“We are dealing with milk companies and retailers trying to find a win-win solution for everyone on the domestic scene,” he said.
Low prices last straw
Farming with wife Grace, son Graeme and daughter-in-law Amanda, Neil will sell up the dairy herd at some stage next year.
Neil was hopeful of retiring from dairying when he was in his sixties but will call it a day at 58.
“We haven’t cut a lot of hay this year and with the grain price the way it is, we will be milking cows at a loss,” he said.
It was not an easy decision for Neil, having milked cows all his life at his family’s property.
Added to that, he has been registering Holsteins under the Belmont prefix for nearly 49 years.
“It’s going to be tough when they walk out the door,” he said.
“We have gotten quite attached to some families.”
The Kroehns currently supply their milk to Dairy Farmers Milk Cooperative at a base price of 32 cents a litre which is leveraged up to 37c/L for milk quality.
“I think we’ve got to be on about 43c/L or perhaps a bit more in years like this to remain viable,” he said.
They already produce first-cross ewes and Neil said it was a good time to change while wool prices were still okay.
Neil has also started breeding Suffolk and Border Leicester rams to sell when the cows go.
But he has a parting shot for the processors.
“I think they all know we need a better price but nobody is putting their hand up and saying they will pay it,” he said.
“If the processors in South Australia don’t watch it, there might not be an industry here, with the exception of some farms in the South East.”