Farm Diary December 31 2008

High input costs took the shine off these very good prices, but even taking the seriously bad weather at harvest into consideration, agriculture has had a good year overall. This winter is proving to be tougher, with poor forages due to lack of sunshine and real pressure on prices as retailers embark on a price war in the high street. 2009 is going to be very much harder and it has already started elsewhere in the world.

In Europe, dairy farmers are coming to terms with the fact that commodity prices have crashed after the sky-high prices at the end of 2007. I believe that European countries are going to regret their increased production as a response to these high prices, and there is going to be a real shake-up over the next two years or so. This will drop production, and that will affect global markets which may well rise sharply as a result. This kind of volatility is now a factor in our lives and we need to learn how to manage it.

Australian farmers have experienced this phenomenon for generations; always seemingly (to us) experiencing boom and bust, with all sectors affected. Climate plays its part in a much bigger way over there, and if the weather hits as the markets crash, then it's very serious. Just before Christmas, Murray Goulburn dairies (Co-op owned by farmers) announced a drastic price cut from 40cents/litre to 24c, to be introduced in February 2009. This has really shaken the industry, and many dairy farmers are locked into high feed prices, which are now falling; adding to the frustration.

The co-op cannot afford people to jump ship as this would make things worse. Banks have lowered credit, funds and overdrafts to companies that buy milk commodities, therefore the shortage of cash globally, the mechanism which clears the conveyer belt of produce being manufactured is broken, and product is being stockpiled.

All major milk processors are looking for storage, not because tomorrow may bring a better price, but because it can't be sold today. As one farmer put it 'They went with a suitcase full of wares to try to sell around the globe and returned with it still full'. This is the world of commodity trading, where the dairy farmer (a producer of perishable commodity in temporary oversupply) is the weakest seller on the planet!

Co-ops such as Murray Goulburn or even New Zealand's giant Fonterra, cannot set farm gate prices, and all the farmers can do is control their monthly spending. Australian farmers are the best in the world at managing these difficult times, and my friend Frank Tyndall who runs the MacAlister Demonstration Farm is going to be very busy as he works at showing his fellow farmers and the media (who always show interest in highs and lows) how to 'stick with the knitting'.

Back on our farm, we hope that our market opportunities, innovation, and added value will cushion the effect of volatility, but we cannot be complacent. Commodity prices certainly do not leave us untouched, but we have two reasons to be cheerful; our lack of production in this country and the weak currency. Nevertheless, we must also work even harder at our own business, making sure that we are competitive.

All the builders have left Crouchlands; gone for their two week break, leaving the site safe and secure. When they return, they should be flat out for three months, and as it is all going to rise up above the ground in January, it will seem real.

At the moment, all we have are two very large (and very thick) circular concrete slabs, but a huge amount of work has gone into the project in order to get it to this stage. We still aim to be producing electricity from the anaerobic digester in the spring! A happy New Year to you all!