16 Dec 2015

Rough year for dairy farmers and rural communities

3:31 pm on 16 December 2015

It's been a bumpy road for dairy commodity prices this year, but they've managed to have one small rise overnight in the last global dairy trade auction for 2015.

Organic Jersey cow on a Rongotea farm.

Photo: RNZ / Alexander Robertson

The overall price index rose 2 percent to $US2458 a tonne in the fortnightly auction and the key commodity, whole milk powder, lifted by almost 2 percent to $US2304.

That was still well short of the break-even range for farmers, who need about $US3000 or more.

Prices have shied away from that mark for most of the year, due to an imbalance in global supply and demand.

Matthew Zonderop milks 200 cows near Matamata in Waikato, and said it had been a tough year for farmers' finances.

"It's been an up and down year. At the start of the year, many farmers didn't receive any cheques from Fonterra from retrospective payments and then to go into the year with no cash flow and a low dairy payout has been quite hard for a lot of families."

A majority of dairy farmers would be in a negative cash flow at the moment, he said.

"I know from personal experience we've had to extend our overdraft and take out smaller loans just to get through that tighter period. Selling capital stock to make ends meet, to keep things flowing really."

The Matamata district had also felt the impact of a lower payout, he said.

"Speaking with locals in town... people aren't really spending money at all. Contracts have been put off. Maize growers have felt the effects that dairy farmers have cancelled maize contracts that they were going to put in place.

"The servicing side, people have actually just about stopped anything unless it's broken."

Mr Zonderop said it had had a big impact on the rural community.

AgriHQ dairy analyst Susan Kilsby said the auction's results were disappointing because a bigger lift was expected.

"Fonterra pulled a bit of volume off out of whole milk powder ahead of the auction but that didn't have much of an impact on prices. The lift in prices certainly was nothing like the level anticipated by the NZX dairy derivatives market. We were expecting whole milk powder prices to lift as much as 10 percent."

Prices would recover but it would be slow going, she said.

"Demand is reasonably weak. We are seeing some signs that China is starting to re-enter the market in coming months, but elsewhere most buyers are well stocked."

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