28 May 2015

Farmers resigned to another tough year

5:14 am on 28 May 2015

Farmers are bracing for another year of poor payouts for their milk as Fonterra announces its forecast farmgate milk price for the next 12 months this morning.

dairy cow

Last season's dairy payment fell to an eight-year low of $4.50 a kilo of milk solids. Photo: 123rf

Farmers and analysts said the price for the season was expected to be around $5.50 a kilogram of milk solids, below the break-even point for many farms.

There has been intense interest in how the next season is shaping up after last season's payment fell to an eight-year low of $4.50 a kilo of milk solids, nearly half the previous year's record of $8.40.

North Canterbury farmer Cameron Henderson has been battling a six-month drought that is expected to drag on until Christmas.

He said a second year of weak payouts added to the pressure of keeping the farm viable.

"It's just survival mode. I myself, I was working off farm this past season but for cash flow reasons have decided to come back and try and save a bit of money on labour costs and run it myself.

"So there'd be a number of people doing that. There's a few sharemilkers that might be taking a year off from farming but for most of the landowners, the owner operators it's going to the banks and working with them to cover the shortfall," he said.

Drought conditions in mid-Canterbury, January 2015

Dry paddocks and low water in mid-Canterbury in January 2015. Photo: Jeremy Talbot

Mr Henderson, who is also Federated Farmers dairy chairperson for North Canterbury, said the region faced another dry year with El Nino weather patterns forecast.

He said many farmers in the area would struggle with the pressures of feeding and caring for their animals combined with financial stress.

"That's really when the support networks need to kick in and the likes of Federated Farmers and Rural Support Trust are trying to do their best but not everyone's going to be optimistic and everyone's in a different boat.

"Some people that are more highly leveraged than what I am that'll be feeling the pinch from banks; others that have probably a lot of equity in their farm and may not be hurting so much."

But Mr Henderson saw a bright side.

"We've had some very good years roll through and this year it's going to take a bit of discipline to keep the hands in the pockets and particularly with things like field days coming up.

"And I think, ultimately, that's probably going to be a good lesson for most of us to learn how to rein in spending again, but yeah it'll be a necessity really for the next six months, at least through till Christmas."

Fonterra's Hautapu dairy factory near Cambridge.

Fonterra is due to announce its next forecast farmgate milk price for the next year today. Photo: AFP

Roger Hutchings, who milks 680 cows near Kaikohe in Northland, said that another year of low payouts meant another year of no spending on his farm.

"We will be basically running a break-even year so, you know, we're working for no income basically. We'll meet all our commitments and we'll keep our belt nice and tight financially but there won't be a lot of profit in it at the end of the day," he said.

Mid-Canterbury farmer Jessie Chan-Dorman said this year's low payout meant the average farmer in her area would have a $250,000 overdraft by September.

She said the debts would keep climbing for another year.

"At the $4.50 milk price, some farmers would make some sort of loss, then at the $5.20, again, the average farmer will be making a loss. That will be two years sustaining losses," she said.

However, Ms Chan-Dorman said many farmers remained optimistic that the dairy price dip would be short-lived and the payout to farmers would bounce back.

"I guess the reason we continue to do it is because the long term outlook is still good. The challenge we have is farming through this level of volatility," she said.

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