Farmers down but far from out with Fonterra news

Media Release

24 September 2014

Farmers down but far from out with Fonterra news

Fonterra Cooperative Group farmer shareholders will welcome confirmation that the 2013/14 season has ended exactly as promised with a total payout of $8.50 per kilogram of milksolids (kg/MS). That good news is balanced by a sharp revision downwards in the 2014/15 forecast.

“The 2014/15 season which offered so much has turned into a breakeven one for not just Fonterra suppliers but the entire industry,” says Andrew Hoggard, Federated Farmers Dairy chairperson.

“Like Synlait’s revision this week, there is a ‘good news and bad news’ dimension in this. The good news is that we take the 2013/14 confirmed payout and the lowest revised forecast for 2014/15, we are talking an average total of $7kg/MS across the two seasons.

“A $5.30 kg/MS milkprice is also a lot higher than some commentators had expected if the forecast sticks. If being a little word with a big meaning.

“Losing 70 cents kg/MS on the milkprice is really going to hurt. Farmers will be kicking capital works into touch and will be pruning herds to rid themselves of any passengers.

“Speaking to DairyNZ, farm working expenses this season, before depreciation and interest payments, are expected to be around $4 kg/MS this season. Feed, fertiliser as well as repairs and maintenance are going to be cut back. We’ll only do what needs to be done.

“What we know from DairyNZ is that two-thirds of dairy farms have working expenses of between $3.25 and $4.75 kg/MS. Of course when you start paying back the bank manager, the average cash costs on-farm head up to $5.40 kg/MS.

“As you can tell from what the forecast currently is, the current surplus is a wafer thin 15 to 25 cents kg/MS. Expressed as retail milk, that’s about 1.25 to 2 cents a litre this season.

“It means that upwards of a quarter of our guys will be making a loss this season.

“We also believe that unlike the Global Financial Crisis, dairy farmers have been listening and have focussed on building financial freeboard. Sadly for some farmers, they’ll have to dip into that big time.

“Federated Farmers’ advice is to watch costs but to keep your bank, farm consultant, accountant and family fully in the loop. Take a no surprises approach to get through.

“This season has been a perfect one for global milk with ideal conditions everywhere compounded by civil unrest in the Middle East and dislocation of European milk due to what is happening in Eastern Ukraine.

“We can only hope there is no more bad news but I am optimistic we may be back above $6 kg/MS for 2015/16,” Mr Hoggard concluded.

ENDS

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