Farmers to focus on costs
Fonterra's forecast milk price drop would take more than $11 million out of the Marlborough and Kaikoura economy, industry body DairyNZ estimates.
Fonterra's forecast milk price was reduced from $7 to $6 per kilogram of milk solids (kgMS) last week, and DairyNZ economists estimated the reduced payout could cut Marlborough's farmer income by $7.1m, and Kaikoura's by $4m.
That means the 60 dairy farmers in Marlborough and 22 in Kaikoura would have their income cut by an average of more than $100,000 each.
DairyNZ predicted national income would be reduced by $1.8 billion this dairy season - an average per farm loss of about $150,000, based on 2013-14 milk production.
Marlborough Federated Farmers dairy section chairwoman Sharon Parkes said the drop in the forecast milksolids price was "a bit of a disappointment".
All dairy farmers in Marlborough supplied to Fonterra, she said, and it would have "a huge impact" on the whole of Marlborough, not just farmers.
"Farmers will shut up their chequebooks. They will still do the vital things, but the extras, they certainly won't do."
The effect on individual farmers depended on their expenses, she said. "Everyone will have to re-do their budgets."
Parkes's warning to farmers about budgeting was echoed by DairyNZ chief executive Tim Mackle, who said farmers should pay close attention to farm costs this season.
Mackle said $6 per kgMS was a break-even payout for many farmers, meaning little capital expenditure or principal payments would take place in the 2014-15 season.
"While it is unclear where prices could be at the end of the season, volatility requires farmers to be prepared to react to changes quickly.
"Now is obviously a good time to look at updating or developing a cashflow budget based on a $6 per kgMS milk price. Look at where the fat can be trimmed and where efficiency gains can be made.
"For instance, growing and utilising more homegrown feed and looking at where supplementary feed can be reduced," Mackle said.
Farmers should also look at what contingency plans were in place for a possible dry summer, perhaps early culling and once-a-day milking, rather than supplementary feed.
And with large tax bills looming from last year's record season, farmers should also contact their accountant to re-calculate their tax.
The Marlborough Express