Farmers confronting second season of low dairy payouts

Farmers confronting second season of low dairy payouts

Federated Farmers says the latest Fonterra $5.25 payout prediction for farmers for next season is a signal that the low payment this year is not a one off.

Dairy chairman Andrew Hoggard says a more immediate impact will be felt from a further 10 cents a kilo reduction in the current season payout down to $4.40.

“This will make it really tough for farmers managing their cashflows through the low winter months with the likelihood of little or no retro payments helping to smooth out that cashflow.”

Hoggard notes Fonterra’s advance rate of $3.66 isn’t scheduled to pick up to $4.17 until February 2016, for the milk produced in January.

“Again that is going to make the period through to next Autumn very difficult.”

He agrees with Fonterra that there are some signs of the overseas markets picking up. He believes Chinese buyers will be back into the market a bit more vigorously than before, as they need to restock their inventories.

“But there are few signs the Russian trade standoff with the United States and Europe over Ukraine is going to end anytime soon.”

“At some stage the Russian government will be looking at alternative dairy supplies which may not come from Europe or America because the Russians won’t put up with going without dairy products for ever. That will help international prices for all producing countries,” Andrew Hoggard says.

“The critical long term factor in our dairy industry is that world dairy consumption is continuing to rise steadily. That fact gets obscured by the violent fluctuations brought on by war and politics.”

He says the huge price volatility over the past two seasons makes planning and budgeting for farmers hugely difficult.

“Farmers used to be somewhat protected from the ups and downs of the marketplace when we had producer boards to smooth our farmer payments. That’s all gone now and farmers are on their own.”

Hoggard says that means it’s vital for individual farmers to get good advice from many quarters.

“It’s not just advice on how much fertilizer to use, or whether to get in supplementary feed. It’s also about taking care of yourself, your family and farm staff. It’s going to be tough times ahead and people need to look after each other.”

Andrew Hoggard says the banks need to appreciate their interests are with a long term view of the industry.

“That price volatility is a fact of life, not an aberration. Everyone, and especially the banks, need to understand this and work with it.”

Federated Farmers Board member and supplier for Westland Milk Products Katie Milne says Westland has predicted its return slightly above Fonterra’s.

Westland has made its 2015-16 season prediction of $5.60 to $6.00 per kilio of milksolids.

Katie Milne says last year Westland pitched its advance payments quite high and then brought them down through the season. Westland will start 2015-16 with a higher than usual advance payout of $4.40.

“That higher level helps get the farmers’ season off to a good start and helps with cash flow at a critical time for them. Fonterra tends to do its pricing in the other direction.”

Open Country Dairy (OCD) forecast its new season milk price at $4.75- $4.95 last week.

OCD supplier and Waikato Federated Farmers President Chris Lewis says factors of global prices, relative prices between different dairy products and foreign exchange rates are more volatile than they ever have been.

“We’ve fortunate however that when that information changes OCD are the first to get out and communicate it to their suppliers. They'll update monthly or weekly if they need to,” Chris Lewis says.

“The OCD forecast is obviously where they see all of those things sitting the next 12 to 18 months based on the information at hand today. When that information changes they're the first to get out and communicate it to their suppliers. They'll update monthly or weekly if they need to.”

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