The drop in Fonterra's forecast milk payout has put extra pressure on Canterbury dairy farmers after a bad summer.
Photo: 123rf
Fonterra announced yesterday it is cutting its forecast payout for farmers to $4.50 per kilogram of milk solids.
"There's not a lot farmers can do with the price as low as it is," said Federated Farmers Mid-Canterbury chairperson, Jessie Chan-Dorman.
The latest news was more pressure in an already difficult season, she said, and to just tinker around the edges, farmers would be getting rid of capital stock.
Dairy NZ's economic survey for the last season showed farmers would be running a loss, said Jessie Chan-Dorman.
"Farm working expenses for a kilogram of milk solids was on average $4.18 in Canterbury, and on average in Canterbury, debt servicing was $1.23.
"That means on average it cost the average Canterbury dairy farmer $5.41 to produce a kilogram of milk solids. So, with a payout of $4.50, that's a loss of 91 cents for every kilogram of milk solids we produce." she said.
Rural Economist for ASB bank Nathan Penny said farmers were able to handle a low payout for now - but the question was how long it would stay at low levels.
"The majority of farmers are reasonably well-placed to see out this season. But it's two seasons of low prices in a row that will make things hurt.
"At this stage, we're expecting the milk price to rebound and get up to about $6 next season. If that doesn't happen, farmers will be doing it tough."
The lower payout was not surprising, but was especially unwelcome following a hard summer, said South Canterbury dairy farmer, Ryan O'Sullivan.
"It's been tough with irrigation restrictions in South Canterbury, and the dry conditions, farmers have had to either dry off early, or spend a bit of money on extra feed, to replace pasture that wasn't growing.
"On top of that, with winter feed stocks below where they could be, it just depends on what kind of winter we get dealt, whether there'll be enough to go around."
With a forecast dividend of 20 to 30 cents a share on top of that, the new price will give the co-operative's farmers a total cash payout for the season of no more than $4.80. Last season farmers received a record payout of $8.50 per kilo of milksolids, which included a 10c per kilo dividend.
AgriHQ said up to $7 billion could be taken out of the economy due to Fonterra's announced payout cut.
