The latest drop in Fonterra’s forecast Farmgate Milk Price to $4.15 per kilo of milk solids (kgMS) means a reduced revenue of around $800 million for the dairy industry this year says DairyNZ.
But the breakeven milk price for the average New Zealand farmer is still $5.40 per kg/MS so they will be getting $1.50 less than that this season says DairyNZ.
It’s also not good news for New Zealand suppliers of farming equipment and machinery as well as fertiliser and other farm sundries.
Extra Fonterra payments from the 2015/16 season are shifting forward into 2016/17 meaning there’s a tough season ahead for dairy farmers as few funds were carried over from 2014/15.
DairyNZ chief executive Tim Mackle says the on-farm cash income of farmers from all milk production this season will be under $4 per kgMS as a result of the Fonterra Farmgate Milk Price dropping to $4.15 per kgMS.
“This will have ongoing effects on farmers’ cash flows, their business equity and their ability to keep managing debt,” says Mackle
“Our industry is facing a reduction in dairy revenues by around $800 million. That means $67,000 less in cash income for the average farm producing 150,000 kgMS,” he says.
“The issues creating the low prices are supply related – Europe is well ahead on production in the last three months. It looks like we could start the 2016/17 season with less than break-even milk prices,” says Mackle.
“A lower New Zealand dollar will provide some support for milk payments and should keep fuel prices and on-farm inflation in check,” he says.
“A positive note is that production and domestic feed supply this summer is good. Rain in December and January has bolstered pasture and crop growth,” says Mackle.
Milk production across the country to the end of December was down 2.6% to last season. Lower North Island (including Taranaki) and the Waikato had the largest declines this season so far, dropping 9% and 5% respectively.
“Global conditions continue to impact dairy prices. Those factors are completely outside the control of the individual farmer. That’s the hard thing for them. Most will have done all they can to reduce their farm costs,” says Mackle.
“Pasture is still the cheapest feed to produce and our ability to grow pasture year round is our competitive advantage as a country. We will be working with the farmers to get the best out of their farming system and change it if they need to do that,” he says.
“DairyNZ and our partners have the tools and resources and the expertise to deliver that advice and support, some of which is focusing on the wellbeing of our farmers,” says Mackle.
“It’s positive that dairy companies are signalling new forecasts now in January so that farmers can make important decisions early in adjusting their stocking rates, drying off and preparing for the 2016/17 season,” he says.
“Many farmers will have to pick up extra work on their farms. Some will be looking for off-farm income opportunities. They will be looking at all their options, and banks will be joining in those conversations,” says Mackle.
