THE opening milk price might not be what most dairy farmers were hoping for nor was it enough to encourage them to expand their operations and boost supply as manufacturers would like to see.
But there’s a new risk looming for embattled processors, the relative price of grazing land as compared to that of traditional dairy land.
That’s the view of veteran stock agent turned real estate agent, Peter Dwyer.
He is in agreement with the Report of General Valuation for the South Gippsland Shire, published last week, that “the demand for larger high-quality dairy properties was strong despite the dry conditions and volatile farm gate prices”.
“I agree, dairy farm values have held up well despite the challenges but there really aren’t that many being sold, not yet anyway.
“The point I make is that the demand for grazing land is pushing prices up towards the value of dairy farm land and it will be interesting to see how that pans out,” said Mr Dwyer.
In other words, while it’s always been an option for a lifetime dairy farmer to decide to turn the cows off and put on some beefies to cut down on the work commitment, relative land values have protected top quality dairy land up until now.
With the gap between the cost of grazing land and dairy land closing, there might be more beef farmers willing to pay the price based on the good returns they are getting for cattle and sheep.
It’s another threat to milk supply and one that major processors are going to have to consider when striking a farmgate price that (1.) encourages dairy farmers to stay in the industry and expand supply and (2.) pays enough to make dairy the dominant option for those buying the land in the future.
Last week, dairy consultant John Mulvany said the 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.”
At a meeting of the Leongatha Chamber of Commerce and Industry last Tuesday night, the guest speaker at their annual general meeting Steve Dyason, the regional operations manager (South East) for Saputo, said the firm’s practice was to provide step-ups quarterly.