Waikato farmers face $30k dairy cut
The Waikato economy could be in for a $102.2 million hit following Fonterra’s 25 cent revision in its milk price forecast for the 2018-19 season.
The cut to $6.75/kg of milk solids could also mean a $30,534 fall in incomes for the average Waikato farmer milking 331 cows, based on statistics from DairyNZ and LIC.
For dairy farmer Ben Moore the revision means a $45,000 cut to his income on his 400-cow, 145 hectare farm near Tirau. While the fall in payout came as no surprise, a $6.75/kg payout is still an historically good price for dairy farmers.
‘‘Anywhere above $6/kg, we’re doing well,’’ Moore, who is also Waikato Federated Farmers dairy chairman, said.
The new forecast is still well above $6.19/kg, which rural consultancy company AgFirst calculated as the break-even price needed for Waikato dairy farmers to be profitable.
Moore said many farmers took advantage of the good payout over the past 12 months to pay off debt incurred when the payout fell.
‘‘You have to look at the 10-year average [milk price] and also, we’re not in it to make a quick dollar, we’re in it for the long haul.’’ Farmers are also having to factor in higher supplementary feed prices caused by drought among Northern Hemisphere dairy producers. Furthermore, maize prices have lifted as farmers look to reduce their palm kernel usage. Moore hopes the price doesn’t drop from $7/kg like it did last time round.
Twelve months after Fonterra announced a $7/kg opening forecast in May 2014, it had fallen to $4.40/kg.
However, ASB rural economist Nathan Penny said it was unlikely farmers were in for a repeat of the 2014-15 season. That fall was caused by an oversupply of milk and there are different factors at play this time round.
‘‘At that point New Zealand production was expanding rapidly off the back of the record milk price. We are not seeing the same rapid expansion and hence we are not seeing the same potential for a massive oversupply in global markets.’’
While the fall was expected, he predicts the forecast to fall even further to around $6.50/kg for the season.
‘‘Based on what has transpired in the dairy auctions since back in May and despite the weakened dollar it appeared that $7 was a bit ambitious. We did expect a cut but what we were mildly surprised with was that it was only 25 cents.’’
He said there’s still a long way to go in the dairying season and the outlook is reasonably positive. Dairy markets were largely in balance and there was a favourable New Zealand dollar.
‘‘We expect a milk price of around $6.50 and for the majority of dairy farmers, that should be profitable.’’ Ben Moore
‘‘Based on what has transpired in the dairy auctions since back in May and despite the weakened dollar it appeared that $7 was a bit ambitious. We did expect a cut but what we were mildly surprised with was that it was only 25 cents.’’