Bega Cheese has flagged the possibility that dairy processors could start paying farmers more for their milk later this year.
Bega said on Wednesday that prices for global dairy commodities have been improving because of lower production from many exporting regions and stronger demand, particularly from China.
"We would expect that if that commodity position prevails and indeed stabilises, you'll see farmgate price improvement later in the year, indeed more likely in the beginning of next financial year," Bega Cheese executive chairman Barry Irvin said on Wednesday.
He said the current farmgate milk price is $5.13 per kilogram of milk solids, down from the opening price of $5.60 in the 2016 financial year.
The Australian dairy sector was plunged into crisis last year, after dairy processors Murray Goulburn and Fonterra unexpectedly cut their farmgate milk prices as dairy commodity prices plunged on a glut of global milk supply.
But Bega on Wednesday booked an 8.2 per cent increase in first-half profit of $15.7 million as prices lifted and the company increased sales of nutritional products.
Excluding a previously flagged $7.1 million impairment related to its Bemore partnership - a 50:50 joint-venture with Blackmores to sell infant formula to China and Australia - net profit for the six months to December 25 was up 39 per cent to $20.7 million.
Mr Irvin said the first-half result was strong considering a very wet winter, a highly competitive retail environment, and significant disruption in infant formula supply channels into China.
Mr Irvin said the second half would be more challenging as the infant formula market had become more volatile.
Mr Irvin said Bega Cheese had now taken a conservative view on the formula business, and new chief executive Paul van Heerwaarden said the company is looking to realign its strategy to better suit the market.
Bega reconfirmed the outlook provided at the company's annual general meeting that full-year earnings will be broadly in line with 2016 before the impact of provisions.
Earnings from its recently announced $460 million acquisition of brands including Vegemite should come on line in 2016/17, with the deal set to be completed by the end of the current financial year.
Shares in Bega were 20 cents, or 3.7 per cent, higher at $5.60 at 1235 AEDT.
IMPROVED DAIRY PRICES HELP BEGA HY PROFIT
- Net profit up 8.2pct to $15.7m
- Revenue up 10.6pct to $621.1m
- Interim dividend up 0.5 cents to 5.0 cents, fully franked