The new forecast meant Fonterra farmers would be paid about 15 cents for every kilogram of milk solid produced between now and spring in retrospective payments. That retrospective payment 12 months ago was $1.90 thanks to record milk prices.
DairyNZ chief executive Tim Mackle said it would be the lowest milk payment farmers would get until Christmas since 2006-07.
«Farmers have been preparing for the worst case scenario – and this is pretty much it – so now it’s a matter of everyone pulling together to cope with it.
«We’ll particularly need to support those farmers who have just bought farms or who are first year sharemilkers as they will have more debt to manage. Lower order sharemilkers are also under immense pressure as they have little wriggle room.»
Most farmers had their cows dried off but had mortgage payments and staff and living expenses, Waikato Federated farmers president Chris Lewis said.
«There’s going to be three months of minimal money and still the same amount of expenses going out like winter grazing, heifer grazing, wages, power – it’s tens of thousands of dollars each month for the average farmer. Every day that you get out of bed you’re going in negative.»
He said it was hard to be optimistic after this latest announcement.
The co-operative also announced an opening forecast of $5.25 per kg MS for the 2015-16 season with an opening rate of $3.66/kg MS.
Farmers would not be paid that rate until they started producing milk in the new season.
Lewis was in a similar position supplying Open Country Dairy after they recently revised their forecast of $4.75-$4.95 for the new season.
OCD’s cash advance rates for June and July including incentives was $4.80 $3.50 respectively. The advance rate for August and September will be at $3.50.
He found it «interesting» that Westland had forecasted a $5.60-$6/kg MS for their suppliers on May 27.
«Is it just them being optimistic and hoping like hell that there is some confidence that things will come right. The question is, how can they pick that figure out? At the moment, the market is telling them that it’s $4.40.»
Morrinsville farmer Guy Kalma said the result was disappointing and contrasted deeply with farmer expectations at the start of this season
«Farmers are a bit bitter to be honest – the ones I speak to.»
Older operators would have experienced payout volatility before, but those newer to the industry would find it especially hard, he said.
Kalma said he would have to borrow extra cash to bridge his financing this coming year. He is in communication with his bank manager, who understood his financial position.
«With the new information on the forward payout, I can make my cashflows work again.»
But cashflows would be tight from now until advance rate kicked in.
«I’m just happy that the few things that really needed to be built and changed on my farm, I was able to do it last year. I certainly don’t have anything spare for infrastructure projects or machinery spending,» he said.
In real terms, farmers would receive less than $5.25/kg MS forecasted in the new season because of the way the co-operative paid its farmers, Mackle said.
Some of next season’s milk price has to carry over into the 2016-17 year. That meant the finishing net cash milk price would be about $4.75/kg MS.
Some farmers would be getting no cash at all this winter because of the low retrospective payments. It was hard to predict how long it would take farmers to recover because it was hard to know when the milk price would start to track up.
Mackle urged farmers to try to minimise the amount of debt they were taking on this season.
«Our estimates for a break-even milk price in 2015-16 is $5.70/kg MS.»
Everyone will feel the pain of the low payout, he said.
«A $1 drop in a change in payout is like a $300 change in the back pocket of Kiwis. The flow-on effects are significant.»
Mackle said the wider farming industry would now have to collectively work to support farmers and the industry to get through the current environment.
«Keep an eye on your neighbour and all of the organisations owned by farmers really need to pool together to help farmers out.»
Source: Stuff
