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Farmers are backing Reserve Bank Governor Graeme Wheeler's comments that the high New Zealand dollar is unjustified and unsustainable.
"There is no basis for the New Zealand dollar's strength and with the global recovery gathering steam, investors need to know it could drop like a stone," says Dr William Rolleston, Federated Farmers president.
Federated Farmers feels a fair value for the Kiwi is more likely in the low 70 cent range against the US and in the low 80 cent range against the Aussie, he says.
"Those buying the dollar haven't grasped that Fonterra has reduced its in-season milk price forecast to $5.30/kgMS. That's in the same ballpark as Synlait, Westland and Open Country.
"It is going to be a buyers market for milk for the rest of this season and the hangover will possibly continue into 2015-16, especially with European quotas coming off."
In a rare statement on Thursday, Wheeler said the dollar is susceptible to a significant downward adjustment.
Wheeler said the bank will welcome a move towards a more sustainable exchange rate level.
He noted the real exchange rate has not adjusted materially to the recent downward movement in commodity prices. Global dairy prices have fallen by 45% since February 2014; despite this, in August, New Zealand's real effective exchange rate was 1% higher than its February 2014 level.
Rolleston says dairy farm incomes this season are expected to be about $5 billion lower - equivalent to a 2.2% decline in national income.
"Despite this, in August, New Zealand's real effective exchange rate was 1% higher than its February 2014 level.
"You are talking for a primary industry worth one quarter of New Zealand's merchandise exports battening down the hatches and that will radiate out to the wider economy.
"While it is not milk and disaster investors need to take some smelling salts and wake up to the reality that the dollar is overvalued.
"If the dollar was at a fair value it would take a heap of pressure off dairy and immeasurably help the new stars of our primary industries, that being beef and sheep.
"A dollar close to fair value would allow sheep and beef farmers to make financial hay while the market sun is shining. They deserve a break but an 'Unjustified and Unsustainable' dollar must drop in order to give them that break," says Rolleston.
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