Lower payout no shock for farmers

00:00, May 29 2014

A scaling back of a record dairy payout will mean millions of dollars out of dairy farmer pockets, but Federated Farmers says farmers remain buoyant.

Fonterra has announced a 25-cent reduction from its record payout of $8.65 per kilo for the 2013-2014 season.

For the almost 1000 dairy farmers in the area covered by Horizons Regional Council, it means about $30 million less than might have been expected.

But it came as no real shock to farmers, who had seen international prices go down in the past few months.

Fonterra chief executive Theo Spierings said market volatility continued to exert a strong influence over the global outlook for dairy.

"Dairy commodity prices have come off the peak reached in early February this year, [back 22 per cent] as global supply and demand have rebalanced."


Farmers did their sums on a smaller payout, Manawatu/Rangitikei Federated Farmers president James Stewart said.

He said the strong payout had largely been used to pay off debt, and also allowed farmers to do repairs and maintenance.

He said farmers would look carefully at what they needed for milk production and he thought they were likely to curb some spending.

Palmerston North City Council economic adviser Peter Crawford said he didn't expect much impact from the fall to a $8.40 payout.

"When you look at dairy farmers, they have got an extra $290m over the last 2012-13 season. So even with the 25-cent drop in payout, it is still well above what they were getting."

Ten years ago farmers were getting $4.58 per kilogram of milksolids, and in 2002 the payout fell to its lowest in 16 years, at $3.66.

Crawford said the milk price coming back might make some farmers think carefully about any spending, and he expected them to prioritise debt repayment.

"Every dollar paid off has an impact. It means dairy farmers will be less exposed. And there is the overvalued New Zealand dollar working against farmers. It is a brake. The thought is over the next few years the dollar will come down."

Stewart said: "We needed a good season, after last year's drought. And we had it. Milk production was pretty good and it got farmers back on track.

"Even $8.40 for last season is really good. But looking short term, there is a bit of pressure coming on prices and supply. However, dairy farmers are feeling buoyant."

DairyNZ chief executive Tim Mackle said while farmers would be celebrating this season's confirmed $8.40 farmgate record milk price, next season's forecast of $7 was a reality check, reinforcing that price volatility was part of the business for farmers. "This season has been a cracker for many farmers."

Manawatu Standard