DAIRY consultant John Mulvany had plenty of timely advice in the wake of milk price announcements last week, urging farmers not to get caught up in “milk price frenzy” and lose sight of the bigger picture.
Speaking to the Sentinel-Times at the Fish Creek Focus Farm open day last week, Mr Mulvany said opening prices for next season announced in recent weeks by processors including Saputo, Fonterra and Burra Foods were fair and in line with expectations.
“If we’re looking at an opening price of between $5.60 and $5.90 [per kilogram of milk solids], they’ve opened exactly where I would’ve expected them to open, and you would assume that we’re going to move upwards from that as the year progresses,” he said.
“That’s above the five-year average, and it should be about $6.20 to $6.30 if we convert from world price to farmgate price at the moment. So, it’s not a bad milk price, as long as we move upwards.”
Mr Mulvany also had some wise words for those disappointed by Saputo’s opening price of $5.75kg/MS, which has been criticised as not “aggressive” enough to attract supply back after the collapse of Murray Goulburn.
“You’ve got to remember [Saputo] have just paid an extra 40 cents a kilo last year to keep their supplier base,” Mr Mulvany said.
“And the last thing you want is a company paying a buoyant price to pick up supply and then reducing that price back to the field in the next two or three years. It just creates instability.
“So, from an industry point of view, I think we should be able to now move on from the Murray Goulburn saga and get back to some normality of pricing.”
But other factors such as controlling production costs and “getting the systems right” should be equally important considerations for farmers assessing their profit margins, said Mr Mulvany, and he hoped changes to milk pricing structure would lessen the focus on the much-discussed issue.
“We’ve been agitating for the last two years to get changes to milk price structure, and we’re right in the middle of maybe getting processors to listen to a much simpler pricing structure.”
An improved structure would see the payment system simplified, Mr Mulvany said, with independent months, rather than linkage between months, and minimal variation other than a “sensibly but not dramatically” lower price in spring.
“The benefit for farmers would be clarity and stopping confusion,” he said.
“Between 2000 and 2006, no one discussed milk price structure; it wasn’t an issue. And then, from 2006 onwards, it became a tool to attract supply and retain supply, and since then, it’s been a topic of conversation and confusion, so if we can go back to that period, I think everyone would be a lot happier.”
Reflecting on the current state of the industry across Gippsland, Mr Mulvany said the pressure had just started to ease in the last month after farmers had been “on a knife edge” through lack of grass, and that now the only “dark cloud” is grain price, which has hiked up to close to $400 a tonne.
Drawing on over 30 years of industry experience, Mr Mulvany did not expect that price to last long, but he said it was another example of the importance of managing risk across a farm business, especially as the industry was sure to continue to have its ups and downs.
“If you’ve got your business settings right, you can trim the grain a little bit if you think it’s too expensive. If you’re milking too many cows and you’ve got to feed grain, you can’t trim it.
“The industry will do what the industry always does,” he said.
“It goes up and down. And it has horribly tough times, but people have to try and make sure that they set their business up with the parameters that they can reap the benefit in the good times but not burn too much in the bad times.
“What’s happening externally with milk price is part of it, but equally, dairy farming is no different to any other business: there are really good dairy farmers and there are less good dairy farmers, so forward planning, controlling your costs, managing your stocking rate, and getting the systems right – you can’t ignore that those are very significant factors.”
Putting the ‘milk price frenzy’ into perspective