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Fonterra Price Drop Shows Another Tough Period Ahead

03 February 2016

NEW ZEALAND - DairyNZ chief executive Tim Mackle says the on-farm cash income of farmers from all milk production this season will be under NZ$4 per kgMS as a result of today’s news from dairy co-operative Fonterra that it is dropping its forecast Farmgate Milk Price to $4.15 per kgMS.

"That’s because some extra Fonterra payments for this season are shifting forward out of the 2015/16 season into 2016/17. Very little was carried over from 2014/15.

"This will have ongoing effects on farmers’ cashflows, their business equity and their ability to keep managing debt. The reduced milk price announcement today means our industry is facing a reduction in dairy revenues by around $800 million. That means $67,000 less in cash revenue for the average farm producing 150,000 kgMS.

"Hard calls will need to be made. However, dairy farmers are extremely resourceful and have been taking significant action to manage the last two seasons. Farmers’ ‘let’s stick together and look out for each other’ attitude will continue to come to the fore. And as always the industry will be doing its best to provide support, building on what has already been done.

"A positive note is that production and homegrown feed supply this summer is good. El Nino has not been as severe so far as some predicted. Some reasonable rain in December and January has bolstered pasture and crop growth," Mr Mackle said.

Milk production across the country to the end of December was down 2.6 per cent on last season. Lower North Island (including Taranaki) and the Waikato had the largest declines this season so far, dropping 9 per cent and 5 per cent respectively.

"The issues creating the soft prices are supply related - Europe is well ahead on production in the last three months. It looks like we could start the 2016/17 season with less than break-even milk prices," Mr Mackle said.

"On the bright side, a lower New Zealand dollar will provide some support to milk payments and should keep fuel prices and on-farm inflation in check. But the breakeven milk price for the average New Zealand farmer is still $5.40 per kg/MS so they will be getting $1.50 less than that this season.

"Global conditions are challenging and continuing to impact prices for dairy. Those factors are completely outside the control of the individual farmer. That’s the hard thing for them. Most will have done all they can to reduce their farm costs.

"This strengthens our resolve as an industry to help farmers through yet another difficult year. We’ll be doing all we can to help them focus on tight and skilled pasture management.

"Pasture is still the cheapest feed to produce and our ability to grow pasture year round is our competitive advantage as a country. We will be working with farmers to get the best out of their farming system and change it if they need to do that," he said.

DairyNZ is working alongside industry partners to provide a variety of support, building on work carried out over the past two seasons, including workshops and trained professionals to help farmers under pressure.

TheCattleSite News Desk

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