Gloom lifts over dairy farmers
North Canterbury dairy farmers heartened by Fonterra’s hike in its payout forecast and promising market signals will not sway from a conservative approach after a taste of life in the tough streets.
The dairy giant’s 2015/16 payout forecast has increased from from $3.85 a kilogram of milksolids to $4.60/kg and might cause some farmers to think twice about turning to beef to lift their revenue. A dividend predicted to be 40 to 50 cents per share lifts this to a payment range of between $5/kg and $5.10/kg.
Better forecasts from Synlait and Oceania Dairy coinciding with three encouraging results in the GlobalDairyTrade (GDT) auction have given farmers some heart, but a material lift in Fonterra’s payout was the sign needed before a hint of a smile could return to glum faces.
Nervousness remains, however, in the wider farming community with weather forecasters pointing to an El Nino this summer and dairy farmers are well versed in volatile changes to their payouts.
Federated Farmers North Canterbury president Frank Brenmuhl said farmers would continue to be conservative despite improved payouts from Fonterra and other milk companies.
‘‘It’s good to see the price rise is consistent with the other companies so far because Synlait has come out with a high figure as well. So it’s consistent across the board and will give a level of promise to farmers as to where the price will eventually end up, but it’s still a forecast. One of the things around this forecast is that it will have been bloody carefully thought through.’’
He said farmers would have appreciated the same degree of carefulness last season and it would have been better to have posted a more conservative forecast earlier when world com- modity prices dropped.
‘‘At the moment farmers are being very conservative and they have to be.’’
National president William Rolleston said the Fonterra increase would help lift spirits, but a $4.60/kg milk payment was unlikely to put farmers in profit territory.
However, it would likely mean that farmer pessimism had ‘‘bottomed out’’.
‘‘Overall it’s a pretty optimistic day where we see a better result from Fonterra. They bailed their farmers out (with a 50c/kg loan) when they were under the pump and they have enough confidence to move the forecast price back up. [But] I would qualify that sigh of relief as they won’t be able to make a profit and there is still pressure on the system.’’
Rolleston said the changes farmers had made to stock numbers, supplementary feeding, halting capital spending and deferring maintenance had put them in a better position to benefit from the better forecast.
Brenmuhl said farmers had appreciated the support of banks during the tough times and hoped this would continue over the next year or so.
He said North Canterbury farmers were the same as other dairy farmers before the payout change and their confidence levels were back as they waited for world markets to turn around.
‘‘Looking worldwide we have had a [milk] glut and may not have a glut this year so that will change things. The fact we have had nearly a 30 per cent drop in the dollar will help out, but will be balanced by the performance of Fonterra’s hedging and how far forward they have hedged and at what rate. So there are issues on the table.’’
The better dairy outlook will hopefully create more demand for feed as arable farmers feel the pinch of dairy farmers scaling down their feed buying.
Some dairy farmers were understood to be moving towards raising more beef animals before Fonterra’s new-look payout on Thursday, but leaders warn the two year lag before they reached killable size carried risks with primary markets notorious for rising and falling. The beef market has been one of the few positives for farmers lately and had helped dairy farmers when they culled cows.
Brenmuhl said he had heard of some dairy farmers looking to raise bull beef calves and dairy farmers had benefited from cull cow returns because of good beef prices, but colostrum supplies appeared to be down and they needed property set aside for this.
He said farmers would be wary of going from one sector to another as history showed that high markets never lasted and this could be a ‘‘risky venture’’.
‘‘Any time the price of something goes up you can bet it will go down and when the animals are ready to be killed will the price be up or down? That’s the bet and the gamble. I don’t think we have seen the beef prices hold up for three years in a row.’’
The beef herd was relatively small in North Canterbury compared with dairy or the sheep flock, he said.
Dairy producers were not the only farmers feeling the pinch and the long drought persisting in parts of the province continues to place pressure on them as well as sheep and beef farmers.
Brenmuhl said sheep and beef farmers in the Hurunui district who had made tough decisions early during the drought were in the best position with the strong possibility of an El Nino appearing this summer.
Some rain in drought areas in Hawarden, Cheviot and Waikari would do no harm for farmers, but further drought from El Nino predictions would cause problems.