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Milk price great news, says DairyNZ

May 24 2017

Milk price great news, says DairyNZ

Today’s Fonterra milk price forecast of $6.50 for the 20117-18 season, coupled with the revised price of $6.15 for the current season, is great news for dairy farmers, says DairyNZ.

It is great news too for the country as it will boost the regional and national economies.

While welcoming the forecast increase, DairyNZ’s chief executive Dr Tim Mackle says he needs to challenge farmers to ‘make hay while the sun shines’.

“By this I mean that farmers need to take advantage of the milk price increases to pay down debt, and carry out the likes of deferred maintenance,” he says.

“Our farmers will continue to focus on the bottom line so that they can move towards regaining the positions they had before the past three seasons of downturn when the price dropped as low as $3.90/kg (2015-16), and many were forced to take on additional debt to survive,” Dr Mackle says.

“These were tough times, the toughest this generation of farmers have endured. However, they tightened their belts, and went about managing costs firmly so as to lower production expenses.

“The debt accumulated needs to be paid down, but very importantly farmers will continue to work to make their business competitive and robust so as to ride out future milk price volatility.

“A strong focus on the fundamentals of profitable dairy farming is important. As part of this, it’s putting pasture first. It’s essential to carefully manage and utilise pasture, and if supplementary feed is required, then on-farm feed crops such as beet and maize are economically used.”

This winter cash flow will be improved with Fonterra’s starting advance rate of $3.70 (vs. $2.50 last year) and retrospective payments coming through, he says.

Dr Mackle adds that as farmers update their cash flow budgets they will be looking for the chance to make debt repayments, and the optimum time to do so.

DairyNZ economists estimate farmers will need to commit 80-85 percent of the $6.50 milk price on running their business.

He says during the lean years farmers were able to reduce their cost of doing business by 15 percent, and have been able to keep expenditure low this season as cash flow has remained tight.

“At the same time our dairy farmers have continued to meet their environmental commitments as is proven in the recently released Sustainable Dairying: Water Accord report on protection work they are carrying out on their farms – voluntarily and at their own expense.

”On top of this, farmers in many regions have just endured one of the wettest seasons on record.

“Now we need a favourable spring to allow farmers to increase profit levels, which will continue dairy farming’s contribution to the economy. It will also allow farmers to continue to re-pay some of the additional debt that’s been built up.”

Dr Mackle says it may take three or four seasons of good milk prices for farmers to recover financially.

Cost analysis:

• Farm working expenses average $3.65-3.75 which is the lowest level since 2009.

• Break even milk price for 2016-17 estimated at $5.20; 2017-18 forecasted to increase to $5.40.

• Production has come back slightly this season, estimated decrease -0.5%.

• Production for 2017-18 forecast to increase 2% against current season.

• With average Owner-Operator production at 160,000kgMS, an additional 50 cents would be $80,000 in increased milk revenue.

• National GDP estimated to increase by $594 million (driven by $6.00 to $6.50 milk price increase)

RegionIncrease in GDP from dairy milk price gains* ($million)
Canterbury152.1
Waikato136.6
Taranaki61.1
Southland57.0
Manawatu-Whanganui30.4
Bay of Plenty28.2
Auckland25.1
Wellington24.9
Northland21.9
Otago19.2
West Coast13.6
Hawke's Bay12.7
Nelson-Tasman6.4
Marlborough3.3
Gisborne1.3
New Zealand TOTAL593.8

*Increase in GDP as a result of milk price increasing from $6 to $6.50.

DairyNZ provides farmers with a range of tools and information to assist with farming profitably - for further information go to www.dairynz.co.nz

-ENDS-


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