Dairy farmers warn processors not to cut opening farmgate milk prices

Under the Dairy Code of Conduct, processors are required to file opening prices by June 1.

Prices paid by some processors have already passed the $10kg/MS; this month the Australian Dairy Farmers Corporation offered $10.45kg/MS from January to June.

Read more: Farmgate milk prices to help offset dairy farmers' rising input costs

Rabobank senior dairy analyst Michael Harvey said it was expected the impact of softer commodity and ingredient prices to flow through to opening farmgate prices for some southern producers.

"Commodity markets have fallen by more than 30 per cent since peaking at this time last year and are now back trading below medium-term averages," he said.

"But encouragingly the landing zone for milk prices will be elevated.

"What will also provide a buffer to a softer commodity basket in USD terms is a weak currency, and a boost to domestic market returns following a period of price increases."

He said there would be "a bandwidth" of prices in the market and some producers would have access to longer-term contracts.

"But all in all, the positive news is that the outlook for the new season is for healthy farm margins with producers to benefit some relief on the cost front," he said.

Kelvin Jackson, Hazel Park, south Gippsland, is milking 400 head and said while there was strong competition for milk, production was still declining.

"All the dairy companies are trying to shore up supply and Coles have come out with a price for at least two years of, I think, $10.35kg/MS," he said.

"That puts a bit of a line in the sand."

He expected other processors not to be "too far off the mark, or they are going to have a further loss of milk."

Mr Jackson said electricity costs were "going through the roof.

"Milking twice a day and having to cool the milk means it is a big cost," he said.

The war in Ukraine had also resulted in a spike in grain prices and diesel.

"Gas prices are so high, which means the Europeans don't want to make urea any more because they can't sell it for what it costs to make," he said.

Grain went up $100 a tonne, and the farm used about 1000 tonne a year, while fertiliser prices had peaked at more than twice the price they were.

"There is some softening of urea prices, but we haven't had the opportunity to take advantage of it yet, because it's been so dry," Mr Matthews said.

One of the biggest concerns was the increase in power costs.

"The reports are that, come July, it's going up between 25-30 per cent," he said.

He was currently being paid around $10.05kg/MS - "at least, at that price, we know we can cover our costs," he said.

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Kirsti Keightley, Port Fairy, runs a herd of 1200 cattle in Victoria and 6500 in Tasmania.

"A price increase would be good, but I certainly wouldn't want to see it any lower," Ms Keightley said.

"But the major cost input, at the moment, is interest rates."

Some costs, such as fuel, grain, fertiliser and power, had gone up 30-40 per cent, in the last 12 months.

"The key thing is if the milk price drops we will lost a whole lot more farmers - we are still losing them," she said.

"Every couple of weeks I hear of someone else coming out of the industry.

"These are established farmers - if we want to maintain the amount of milk we have got, we have to maintain the price."

She said she believed by the time the year finished, production would be down 20 per cent, over three years.

"One year of a high milk price doesn't change that," she said.

She said every expense was being scrutinised, to help lower costs.

"Every time we do something we ask the question, does this help the cost of production hinder it?

"Obviously we have had a good season, we have had a good autumn break so you have to maximise grass production.

"The cheapest form of feed is home grown feed - you just have to keep the basic principles of farming."

Bruce Glasgow, Bena, has a 300-head herd and said he wouldn't want the price to be much lower than this year, around, or just below, $10kg/MS.

"I think there would be a bit of a backlash, if there was a huge drop - in terms of an exodus from the industry."

"Hopefully the processors have their pencils sharp."

Positive years, like the current one, meant farmers were able to make improvements to their properties.

"It would be good to do the same," he said.

He agreed fuel, electricity and grain saw among the biggest price rises, but floods had meant hay would be in short supply and expensive.

"There is always somebody to take a piece of the pie, when you think you might get a bit of it yourself," he said.

Bridget Goulding, Katunga, has a 130 head herd and said it would be lovely to make around $10kg/MS.

"It would be lovely to stay at that - we have a Code, which means they can't do what they did in 2016, but what do the processors do?

"They have to cover their costs too."

Farmers were also watching the Global Dairy Trade..

'It's been dropping for a few rounds," she said.

The latest GDT dropped a further 2.6 per cent to USD $3361/tonne.

When the price of hay came up in 2002 it never went back down.

"They have their costs, in producing hay, and they are going to pass it through," she said.

"The sad thing with dairying is that we can't pass those costs through - we are price takers and it's not like that we are not going to sell our product, we have to."

She said she'd been told a number of farmers in the Cohuna area would walk away, if the price was around $8kg/MS or under.

But Ms Goulding said she didn't have labour issues.

"We don't have to worry about the labour costs, we just have to worry about the fact we fight with each other, while we work together," she said.

Cohuna dairy farmer Kelvin Matthews said he'd expected processors to put some preliminary prices out by now.

He's milking between 230-240 head and said the price "has to be $8 plus.

"$10kg/MS would be nice, but - in all reality - dairy prices are softening around the world, so I think $8-9kg/MS is where its going to open."

He said he didn't expect another "bidding war" among processors.

"I think they [processors] have used a fair bit of their money, this year, chasing milk," he said.