Taranaki farmers are hoping Global Dairy Trade prices will recover as the 2014-15 season progresses.
Prices fell 8.4 per cent on Tuesday night, a week after Fonterra cut its forecast farmgate milk price by $1 to $6 kilogram of milksolids.
New Zealand Sharemilker of the Year Charlie McCaig, in his first season as a 50/50 sharemilker at Te Kiri, said that although the tumble was disappointing, farmers did not need to panic yet.
"It's still early days - there's a long way to go yet. Things could swing round quite a bit."
He said there was an assumption within Fonterra's $6 forecast payout that GDT prices would firm up later in the season.
"It's not doom and gloom just yet."
He and wife Jody tried to run as low a cost structure as possible.
"The more we see things slide, the harder we'll look at the budget. For example, we might delay some purchases until next season."
Auroa farmer and member of the Fonterra Shareholders' Council, Rob Poole, was surprised that GDT prices were still dropping.
"But it is what it is," he said. "The effect will be that farmers will make less money. And it won't only affect farmers. When farmers stop spending in places like Taranaki, it affects the whole economy."
Like McCaig, he said there was an expectation that the $6 forecast would correct during the season.
"But we don't know when that will be. The longer the (GDT) prices go in this direction, that may not be so.
"Every two weeks we have an indication of what's happening at the coalface. We can't control that but we can focus on doing well what we do inside the farmgate."
Vanburwray chartered accountant Peter Darney, of New Plymouth, said the substantial drop in the GDT price was a bit of a shock.
"We expected it to have plateaued out, so the risk is the payout could drop even further."
A payout below $6 was approaching the average cost of milk production and would put many farmers at close to breaking even rather than having the cash surplus they expected.
Rising interest rates would compound the effect of a lower payout. "So there could be a double hit."
If the payout fell further, farmers would spend on maintenance rather than on capital works and development and businesses in towns in Taranaki would be affected, he said.
"We're hoping this is just a blip in global supply and demand and for an upward trend later in the year."
- Taranaki Daily News
Does more need to be done to protect NZ passports?