Dairy cash flow turning red

He told Rural News that rising on-farm inflation means the average dairy farm's breakeven milk price is approaching $9/kgMS. Fonterra's forecast milk price mid-point currently sits at $8.30/kgMS.

"An increasing number of farms are now in a negative cashflow situation," he says.

McIntyre's comments came as last week's Global Dairy Trade (GDT) auction recorded one of its biggest drops in dairy prices seen over the past two years.

Whole milk powder prices, used as a benchmark by Fonterra to set its milk price for farmers, slumped 5.2% to US$3053/metric tonne - the lowest since November 2020 when it was hovering around US$3057/MT.

McIntyre says last week's GDT results "wasn't the news farmers wanted to hear".

Fonterra, which last week narrowed its forecast milk price range by 20c, has lifted its advance rate, a proportion of the milk price paid to farmers monthly. The co-op plans to hold the higher advance rate until June.

McIntyre says the higher advance rate will protect Fonterra farmers' cashflow through to the end of the season.

But he says all eyes will now be on the 2023-24 opening forecast and advance rate as that will play a significant role in determining farmers funding requirements.

"Farmers will need to analyse their businesses, identify areas of potential cost savings and work with their advisors and banker to find the best way to manage any potential deficits," he says.

Fonterra's full year forecast normalised earnings of 55-75 cents per share remains unchanged.

Analysts remain divided on the forecast farmgate milk price for the new season. Current forecast price ranges from $7/kgMS to a bumper $10/kgMS, reflecting volatility around both supply and demand around the world.