Dairy farmers close chequebooks
Photo: DAVID UNWIN/FAIRFAX NZ
Manawatu farmers say they will close their chequebooks, as they have control over their spending, but not dairy prices.
The latest GlobalDairyTrade (GDT) auction returned disastrous results, with dairy prices falling 10.7 per cent, the largest drop in the past 12 months.
The average sale price was just US$2082 a tonne but much of the product sold below that price. It has economists saying the price might fall and farmers would get less for their milk.
Rangiotu dairy farmer Robert Ervine said the recovery in dairy prices had been slower than expected.
"I can't worry about the milk price or the weather - things I have no influence over. But I am super-vigiliant on spending. The chequebook is shut and I am only spending what I have to."
AgriHQ dairy analyst Susan Kilsby said the dive in prices suggested market participants were taking a much dimmer view towards a price recovery.
"Farmers now face two consecutive seasons of extremely low milk prices. The majority of farmers can't break even at such a low milk price," she said.
Federated Farmers dairy chairman Andrew Hoggard, who farms in northern Manawatu, said buyers were holding off and he believed they were waiting for New Zealand's spring season production.
"But my gut feeling is, with a cold, wet winter, and the extra dairy cows that were culled, there will be a correction and the same or less milk could be produced."
Hoggard said dairy farmers without debt and low production costs could scrape by at $4.20 per kilogram of milksoilds, as some were predicting.
But he said at that payout level most farmers would not make a profit, and many would lose money.
Federated Farmers Manawatu/Rangitikei president James Stewart, who has a dairy farm at Hiwinui near Palmerston North, said farmers wanted some answers about what was happening to international prices.
"The latest fall is a blow to farmers. It's not sustainable for dairy farmers at these prices. The low auction prices have gone on longer than we thought."
He said farmers could cope with one low payout year, but two was really hard and many farmers would be under severe financial pressure.
"People will try to manage. But we were hoping the lows might go for 12 months - this is longer and more painful."
Stewart said most dairy farmers could not afford to bring in extra feed - so any cow not producing would be a passenger that farmers would get rid of.
He said farmers would stop repairs and maintenance to machinery, stop any development, and environmental projects they might be about to undertake would go on hold as they cut costs.
Kilsby said a $1/kgMS drop in the milk price equated to approximately $2 billion less income for dairy farmers.