2 Apr 2015

Low dairy prices may have silver lining

3:07 pm on 2 April 2015

While all dairy farmers will be feeling the financial crunch this year, some are still looking for a silver lining.

Dairy farmer in a milking shed

Low dairy prices could open the door for new sharemilkers. Photo: AFP

Federated Farmers' sharemilking chair Neil Filer said it could provide an opening for young sharemilkers to get their foot in the door.

Prices fell by 10.8 percent in last night's GlobalDairyTrade auction, with an average price of $US2746 a tonne. Whole milk powder fell 13.3 percent to $US2538.

Mr Filer said sharemilking was still seen as an attractive and viable industry and at times like this, there could be a positive side.

"If there's older farmers that are hanging in and not making a lot of money, well they might decide to put a sharemilker on, so I'm always trying to look at the silver lining of the situation.

"This might be an opportunity for some younger guys with a longer term view, not a lot of money and not a lot of experience but they've got time on their side, you know that's the key, is for the younger people to cement their place in the industry now and ride it out," said Mr Filer.

Mr Filer said he was not denying it was a tough season and said some people would be hurting, but the price drops did not come as a surprise.

"We could see the GDT was coming down so we tightened our belts early and tried to push that cash forward and you know sharemilkers are pretty sharp business people.

"The existing guys will be fine, it's the new entrants and the guys that are just starting into sharemilking this year and next year that we have to keep our eyes on," said Mr Filer.

'Grim news' for Fonterra and farmer shareholders

Waikato University's professor of agribusiness, Jacqueline Rowarth said the latest slump in global dairy trade prices was grim news for Fonterra and its farmer shareholders.

Professor Rowarth, who is also a shareholder in a Waikato dairy farm, said Fonterra's farmers were already angry over it reducing its dividend forecast and if it was forced to drop its milk price further as well, that was going upset them even more.

"If that goes down, then Fonterra shareholders will be absolutely right to be furious, because we need to see some balance in the dividend for farmers to feel that their company is doing anything good for them at all.

"This is below the cost of production already and you can imagine how disheartening this is for farmers to know that they're losing money on every kilo of milk solids."

So they will be looking for somebody to blame and obviously they want to blame Fonterra. That's what the shareholders' meetings have indicated around the country. Farmers are furious."

Professor Rowarth says while Fonterra's milk price forecast isn't very different from what other companies ae paying, its farmer shareholders have got an average of almost a million dollars invested in shares in the company to give them supply rights.

She says they could join another company without having to use that million dollars to buy shares to supply milk.

"Except that all the other companies are full, they've got waiting lists and again, this is an indication that farmers are not happy with what Fonterra is doing."

Professor Rowarth says Fonterra farmers have been led to expect that when the milk price is low, the dividend should be high.

"At the moment the dividend is a range of 20 to 30 cents a share and the general calculation was that it should be 40, more like 60 cents a share, and the farmers feel that they are borrowing money to support Fonterra and yet they are not getting any money back on that investment."

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