This season many dairy farmers will face further financial losses which will need to be funded by new debt or equity into the system, or in some cases involve exit. Will it get this bad? We will need to wait until the season is over to find out.
At the moment there are a number of factors occurring in the international dairy markets impacting upon the global demand and supply of milk products. In Europe the removal of milk production quotas has presented opportunities for dairy expansion with a number of European countries gearing up their milk production. Trade sanctions against Russia have affected the demand for dairy products from Europe, who in turn have focused on alternative markets. There has also been a steady increase in export sales out of the US accounting for 15-16% of milk production, up from around 4% in 2004.
The question is whether there has been a fundamental structural shift in the market, or is this just part of a market cycle? The general view is that this is part of a market cycle rather than a fundamental structural shift, as there has always been some level of regulatory intervention in global markets. However there do appear to be higher than 'normal' factors at play in the global market geared at increasing milk production.
There is no doubt that we are experiencing greater volatility in global dairy markets than ever before, which has implications for profitability and decision-making processes on-farm.
The time between market cycles is decreasing significantly, while the intensity of market cycles is increasing, which are beyond the control of farmers, rural professionals and government under the current market structure. The focus is therefore on the areas within the farm system that farmers and their advisors can control and manage in response to signals from the marketplace.
To this end, gaining more information from the global market and understanding the impact of shifts in supply and demand for dairy products have on the farming business have a critical part to play in enabling farmers and their advisors to make informed decisions. The challenge for rural professionals is keeping up to speed and staying informed on global market shifts for our dairy products and potential implications back on-farm.
The question for me is how do we build platforms and channels that allow the primary industry, government and the rural profession to respond more quickly and in a meaningful way when significant issues occur within the primary industry and the marketplace to enable the right conversations to occur at the right time.