8 Mar 2016

Fonterra price drop 'gut-wrenching'

3:01 pm on 8 March 2016
Dairy cow close up generic

Photo: 123rf.com

Fonterra today lowered its forecast payout by 25 cents to $3.90 per kilogram of milk solids and it's expecting milk production to be down 4 percent on last season, as farmers respond.

The cooperative's forecast has dropped by 70c in the past two months in response to the a glut of milk around the globe, ramped up production in the European Union, falling oil prices, sanctions against Russia and weak Chinese demand.

Just two years ago, Fonterra farmers received a payout of $8.40 per kilo of milk solids.

Matthew Zonderop, a dairy farmer in the Matamata Piako region, has been in the industry for 12 years and said he hasn't experienced a time like this.

He's 50-50 sharemilking 200 cows and receives 50 percent of the forecast milk payout as his income.

"This one is really gut-wrenching. It's going to make things a lot harder.

"We're just going to have to justify every single cent....now it's almost like the tap is turned off and things are really going to be affected on the farm, not only for me but for a lot of people.

"Maintenance is going to definitely be deferred, animal health...not animal welfare, but animal health, things like dry cow therapy will be cut, herd testing, mating - anything to do with those things for autumn calving.

Business margins would be extremely close now, he said.

Fonterra sign on a farm. Rural Rapid Number.

Photo: RNZ / Diego Opatowski

"As soon as we turn the plant on, start a bike, do anything, it's going to cost us money. We looked at that we could scrape through only just, but now it doesn't look like we'll come above any sort of profit this year."

People are questioning how they'll be able to farm out of the lows, he said.

While he has not seen farms for sale in his area because of the low dairy prices, sharemilkers were the hardest hit, he said.

"Sharemilkers, lower order sharemilkers...some of them are going to be seriously affected and will be exiting the industry at the end of the season."

He has called on Fonterra to make cuts, while its suppliers are having to do the same.

"I think they can be doing more. I hate to say it but I think they've got to start cutting wages themselves, it's just the only way that they're going to be saving more money to put back into the farmers pockets...as a cooperative, and one way to do that is start cutting staff wages."

Farmers seek accounting advice

A rural accounting specialist in Canterbury says he feels more like a social worker than an accountant at the moment.

Pita Alexander said his phones are running hot from clients in the dairy and other rural sectors.

The latest Fonterra payout revision means many dairy farmers will be looking at a loss of about $1 per kilogram of milk solids, Mr Alexander said.

"By the 31st of May 2016 we need an improvement so we are not looking down the barrel of a loss for the 31st of May 2017 of anything like a dollar a kilogram, because that will cause trouble."

It was an art form to maintain production on an owner-operator dairy farm and at the same time get farm expenses down, he said.

"The very good operators can operate at $3.80, one or two even lower, but anyone who is going to push them much lower than that is going to struggle to keep the per-cow per-hectare production figure on the other side of the ledger."

Dairy farmers were listening more to their advisors, he said.

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