Dairy farmer confidence levels have leapt in the past year on the back of good seasonal conditions and strong milk prices that have lifted farm profitability levels.
However, the improved confidence has not translated into increased national milk production, with minimal change in the past 12 months.
Dairy Australia's June 2021 Situation and Outlook report released on Wednesday pointed to high beef prices and strong land values as continuing to encourage dairy farm exits.
And it said labour shortages were a big concern for dairy farmers across the country.
Globally, supply growth has been modest while demand remains solid, driven by China.
The report said favourable operating conditions had had a substantial impact on industry sentiment.
Data from the latest National Dairy Farmer Survey revealed 64 per cent of dairy farmers were feeling positive about the future of the dairy industry, up 20pc from last year and 30pc from the low point in 2019.
The positive level is the highest since 2016, with the national survey that year taken just before the disastrous milk price clawback.
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The survey revealed a jump in farm profitability.
"For the 2019/20 financial year, the proportion of profitable farmers lifted significantly, with 80pc reporting a profit," the report said.
Almost two-thirds of survey respondents expected this year's profit to be higher than the average of the past five years.
This profit boost has seen a lift in on-farm investment.
Almost all surveyed farmers (91pc) reported making investments in the past two years, 27pc of which were considered major ones.
The investment is expected to continue with 88pc of farmers intending to undertake investment in the next two years - with machinery, dairy and irrigation plants top of the list.
But the lift in confidence and profitability has not translated into a milk production increase.
"Despite a significant uplift in farmer sentiment following one of the best seasons on record, Australia's national milk pool remains stagnant," the report said.
"A key factor behind this development is the large proportion of farm businesses operating in a steady enterprise phase.
"While the number of farmers looking to expand their business has grown, almost twice as many aim to maintain their current size.
"Additionally, an increasing proportion of businesses are looking towards a maintenance approach for the next three years.
"This suggests that business consolidation, and possibly debt reduction, are considered to be of higher importance compared to growth."
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