Farmers are not panicking over the latest price fall in the global auction of dairy products even though prices have hit a two-year low.
"I don't expect this latest result will affect the payout forecast in the near term," said Federated Farmers head of dairy and vice-chairman Andrew Hoggard, a Kiwitea dairy farmer. "What will be critical is the expected market recovery in the New Year."
This week's 8.4 per cent drop in Fonterra's GlobalDairyTrade (GDT) auction comes on the back of an 8.9 per cent plunge on July 15, fuelling speculation the co-operative may need to further cut its payout forecast for farmers this season.
The company cut its milk price payout forecast by $1 a kilogram of milksolids to $6/kg a week ago.
"But this fall in prices was what Fonterra expected - a drop in the short term, then prices to start going up," said Manawatu/Rangitikei Federated Farmers sharemilkers' section chairman Richard McIntyre.
He said if they were still falling in January, farmers might get worried.
"Unless we have World War III or a pandemic, this isn't a ‘milk and disaster' soundbite," Hoggard said. "Memories seem to be short these days but there are no lakes of milk powder or mountains of butter anywhere."
Federated Farmers national sharemilkers' section chairman Neil Filer said dairy farmers had seen markets rise and fall before, but it would be hard on newcomers.
"It's not new territory and I remember about three to four years ago we had a massive drop in a mid-December milk auction, if we look back at the GDT.
"We were told this was coming and it's on the back of a high payout, so existing sharemilkers will be good, but new entrants will be vulnerable and these are the guys we worry about as they come with high debt and a first year in a low payout."
The writing had been on the wall that dairy prices would come off the boil, said Filer, a Dannevirke variable order sharemilker.
McIntyre and Filer said sharemilkers would cut their costs on items such as fertiliser.
Existing sharemilkers would have the benefit of surplus cash from last season, Filer said.
Cow prices had held up reasonably well so far, despite the price reaction to more milk on the market from other countries having good seasons and big buyers such as China carrying more milk supplies than previously.
Filer said the fall in dairy prices could have a silver lining as it might shake up land prices.
Sharemilkers would find a way of making their businesses work, he and McIntyre said.
The average price at the last auction was US$3025 a tonne, more than 40 per cent down from the latest peak of US$5042 on February 4. Dairy prices have fallen at 11 of the last 12 auctions.
- Manawatu Standard
If you had a choice, which would you prefer on Christmas day?Related story: Sun takes a Christmas holiday