Wednesday, 24 September 2014 14:48

‘Breakeven’ season for dairy

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The 2014-15 dairy season, which offered much, has turned into a breakeven one for not just Fonterra suppliers but the entire industry, says Federated Farmers Dairy chairman Andrew Hoggard.


He welcomed the co-op's final payout of $8.50/kgMS for last season; it comprises a milk price of $8.40 and 10c/share dividend.


But he noted that the good news is balanced by a sharp revision downwards in the 2014-15 season forecast. Fonterra has dropped its forecast milk price for the season to $5.30/kgMS; it also announced a dividend range of 25-35c/share.


Hoggard says there is a 'good news and bad news' dimension in Fonterra's announcement.


"The good news is that we take the 2013-14 confirmed payout and the lowest revised forecast for 2014-15, we are talking an average total of $7/kgMS across the two seasons.


"A $5.30/kgMS milkprice is also a lot higher than some commentators had expected if the forecast sticks. If being a little word with a big meaning.


"Losing 70 cents on the milkprice is really going to hurt. Farmers will be kicking capital works into touch and will be pruning herds to rid themselves of any passengers."


Hoggard points out that farm working expenses this season, before depreciation and interest payments, are expected to be around $4/kgMS this season. Feed, fertiliser as well as repairs and maintenance are going to be cut back.


"We'll only do what needs to be done," he says.


"What we know from DairyNZ is that two-thirds of dairy farms have working expenses of between $3.25 and $4.75/kgMS. Of course when you start paying back the bank manager, the average cash costs on-farm head up to $5.40/kgMS.


"As you can tell from what the forecast currently is, the current surplus is a wafer thin 15 to 25 cents. Expressed as retail milk, that's about 1.25 to 2 cents a litre this season.


"It means that upwards of a quarter of our guys will be making a loss this season.


"We also believe that unlike the Global Financial Crisis, dairy farmers have been listening and have focussed on building financial freeboard. Sadly for some farmers, they'll have to dip into that big time."

 

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