The upcoming 2022-23 dairy season is expected to open with large numbers on both sides of the ledger, according to the latest Dairy Australia's Situation & Outlook Report.
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 from COVID-19.
After successive seasons of recovering profitability, the net effect of these rapid and substantial changes on margins is in 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 respondents reporting an operating profit in 2020-21, and 90pc expecting to do so in 2021-22.
The report also revealed that 88pc of SA dairyfarmers were confident about the future of their own businesses, while the industry's future confidence had dipped from 83pc in 2021 to 68pc in 2022.
Dairy Australia industry insights and analysis manager John Droppert said the SA results reflected only 18pc of all the state's dairyfarmers.
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He 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 are 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," he 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 has shifted from grocery to foodservice, as the effects of the pandemic recede and more consumers get 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."
But one in five SA dairyfarmers were not looking to expand at the moment.
"We've got a share of farmers that are that are growing overall and in SA we're expecting milk production to be fairly flat at around 490-500 million litres," Mr Droppert said.
Woods Point dairyfarmer Steven Afford said milk companies had came out with an early price, which had jumped up by 10 cents/L.
"That's helped make dairy farming a little bit better," he said.
"We are probably more cautious than optimistic at the moment, but I'm pretty confident in what we do.
"From the dairy irrigation side it'll be good - it's probably our dryland which is our biggest risk and if it will rain to grow our feed and grain."