Cuts to milk prices will make the 2016/17 season challenging for Australia's dairy sector, but many farmers' prudent financial planning will get them through it, according to agribusiness banking specialist Rabobank.
A lot of dairy farmers in recent years have used improved profits to reduce debt rather than expand their business, according to a Rabobank report.
"This focus on manageable debt levels has proved paramount to maintaining farm resilience in an ever-increasingly volatile climate," Rabobank senior dairy analyst Michael Harvey said on Thursday.
He said average farm debt levels in Victoria were 20 per cent below their highs of 2008/09.
Also, most major farm expenses are at historically low levels, with grain and global fertiliser prices close to their lowest points in 10 years.
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Mr Harvey said that much of the dairy sector will be able to source working capital to manage the current downturn.
Dairy farmers should also consider adopting more flexible production systems that enable them to scale back costs in tough times.
"It is no longer enough to be a low-cost, pasture-based milk producer," Mr Harvey said.
Rabobank does not expect dairy prices to improve much in 2016/17. Prices are expected to rise modestly in the first half of 2017.
Mr Harvey said the global oversupply that has caused the drop in milk prices was starting to be turned off as farmers around the world adjust their production in the face of continued lower prices.
"This supply response, together with stable demand growth in the US and Europe, is expected to see exportable surpluses dramatically reduce," Mr Harvey said.
