ALMOST 600 Victorian dairy farmers have fully withdrawn their farm management deposits this season as they bunker down or abandon the land.
The global financial crisis, followed by a 40 per cent milk price slump and massive rise in the Australian dollar, has left dairy farmers dazed and uncertain about the future, prompting the $32 million FMD withdrawal.
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Dairy Australia's latest Situation and Outlook report, out today, shows the proportion of farms with negative cash incomes jumped from 26 per cent in 2008-09 to an estimated 44 per cent this season.
Northern Victorian and the Riverina farmers have been hardest hit, enduring average losses of $27,300.
But there is some hope on the horizon with Dairy Australia forecasting 2010-11 farmgate prices will open at $4.40-$4.60/kg of milk solids and close at $5-$5.40/kg. This season's closing price is expected to come in at $4.40/kg.
Dairy Australia trade and strategy analyst Chris Phillips said the fundamentals of the global dairy market were strong, with good demand, low inventories and minimal production growth among Australia's export competitors.
But he said no one could predict what would happen in global financial markets, which could undermine the dairy market's foundations.
He said the turmoil gripping Europe had given its dairy exporters a competitive edge as the euro's value plummeted.
Europe produces 30 per cent of the world's dairy exports, which become cheaper as the euro falls against the US dollar.
Most farmers are hoping for some stability next financial year after 18 months of chaos.
United Dairy Farmers of Victoria president Chris Griffin said everyone was looking to consolidate before making any major decisions.
Many dairy farmers will eye Dairy Australia's opening price forecasts with some scepticism, having seen their 2008-09 milk price slashed mid-season following the global financial crisis.
Mr Phillips said he realised dairy farmers would be cautious in light of global uncertainty.
"People have sold FMDs and water, so they don't want another hit on their equity, because they don't want to be stretched," Mr Phillips said.
"They will be slow to respond to what is a positive (dairy) market. You need to be damn sure the world is going to be a better place before you act on it."
Dairy Australia's report, Riding the Rollercoaster, showed interest payments were the second biggest expense for dairy farmers, representing 10.7 per cent of average dairy farm cash costs this financial year.
An Australian Bureau of Agricultural and Resource Economics analysis commissioned by Dairy Australia showed Australian dairy farm debt had surged by 20 per cent in the past two years to an average $683,000 a farm.
But debt levels and losses varied enormously across the nation's dairying regions.
While dairy farmers in northern and Western Australia could afford to take on new debt, those in northern Victoria and the Riverina sold water to curb their debt levels from $579,120 in 2008-09 to an estimated $538,000 this season.
Rochester accountant Ian Sinnett said it made sense for irrigation dairy farmers to sell some water and retire debt in the face of such difficult seasons.
But he said local dairy farmers certainly would not be "dancing around the paddock" in response to the latest milk price outlook.
The DA report also showed northern Victorian and Riverina dairy farmers have endured rates of return equal to minus-3.9 per cent (excluding capital appreciation) this financial year.
But dairy farmers in other parts of Victoria and interstate enjoyed positive rates of return.
The ABARE analysis also showed a dramatic drop in national average farm cash income this financial year to $50,000, down 43 per cent from $88,000 last season.
It showed northern NSW, Queensland and Western Australia experienced what DA called "relatively benign" conditions and relatively stable contract prices.
