Sharp drop in dairy prices alarms
Canterbury farmers will be "burning their chequebooks" and preparing for more uncertainty after a dramatic drop in the global dairy prices.
Dairy prices dropped again in the fortnightly Global Dairy Trade yesterday with the price index slumping 8.9 per cent.
The fall comes after a weak start to the year on Fonterra's online trading platform, with prices down a third since January.
Federated Farmers North Canterbury dairy spokesman Vaughan Beazer said the drop was alarming.
"We are having to burn the chequebooks now. When we know how far it is going to fall we can adjust but we don't know if we are going to see [it drop] another 5 per cent. It's a rollercoaster ride."
North Canterbury farmer Enda Hawe said the result was a disappointment, but not "the end of the world".
"We have to ride the wave when it's high like last year so we can prepare for these sorts of years."
Hawe said farmers had to be realistic about prices returning to their former state.
"Realistically it's not going to jump back up 10 per cent," he said.
"When you do your own farm budget you know what sustainable is. We made a lot of money last season. This season is going to be a bit tighter."
The price drop has led banks to warn a forecast interest rate rise may not eventuate.
Prices for whole milk powder, down 10.9 per cent, led the decline, while butter prices fared better, down only 1.1 per cent.
According to the Global Dairy Trade exchange, prices are now the lowest since the end of 2012.
Federated Farmers Mid-Canterbury dairy chairwoman Jesse Chan-Dorman said volatility was the only certainty in the industry.
"The long-term outlook is still strong. That's the nature of farming – we put in place mechanisms to work through the volatility."
Farmers would have used last year's healthy payouts to pay down debt or invest in needed equipment, she said.
"It's hard to say if it will be lean. I don't have a crystal ball, but in previous years when it looked lean it turned out OK."
The dairy sector is an important part of the New Zealand economy, with a DairyNZ report this week saying it contributed $14.32 billion to the national economy last year.
Consumers should not expect cheaper milk, butter and cheese following the big price fall in the latest Global Dairy Trade Auction.
Industry analysts and supermarket chains say the impact might not be felt for many months.
Fonterra Brands spokesman Peter McClure said "the farm-gate milk price sets the import costs for milk producers and that hasn't changed at this point."
Waikato University Professor of Agribusiness Dr Jacqueline Rowarth said milk was "cheaper than it has ever been" thanks to increases in salaries.
Salaries had risen on average 1.6 per cent over the past year, while food prices had gone up 1.2 per cent, she said.
A Countdown Supermarkets spokesman said no price cut was expected because there hadn't been a decrease in the price paid to its suppliers.