Wednesday, 16 September 2015 08:00

Lower interest rates lifts dairy farmers

Written by 
Fed Farmers’ Andrew Hoggard says most farmers will have to borrow money to get through a challenging season and a lower interest rate will help. Fed Farmers’ Andrew Hoggard says most farmers will have to borrow money to get through a challenging season and a lower interest rate will help.

Dairy farmers are welcoming the latest cut in the official cash rate.

Federated Farmers Dairy president Andrew Hoggard says most farmers will borrow money to get through a challenging season and a lower interest rate will help.

“The less interest they will pay, the better,” he told Rural News.

Hoggard also expects the cut in the OCR by 25 basis points to 2.75% will push the dollar down, helping export earnings.

Reserve Bank Governor Graeme Wheeler has signalled further cuts. He says global economic growth remains moderate, but the outlook has been revised down due mainly to weaker activity in the developing economies. 

“Concerns about softer growth, particularly in China and East Asia, have led to elevated volatility in financial markets and renewed falls in commodity prices,” he says. 

The New Zealand economy is adjusting to the sharp decline in export prices, and the consequent fall in the exchange rate.  

“A reduction in the OCR is warranted by the softening in the economy and the need to keep future average CPI inflation near the 2% target midpoint,” Wheeler says. “At this stage, some further easing in the OCR seems likely.  This will depend on the emerging flow of economic data.”

Hoggard says while farmers are happy with the low dollar and low interest rates, they are also watching the GlobalDairyTrade (GDT) auction, which has made two strong consecutive gains after a run of 10 price drops.

He believes unless there’s a miracle and GDT prices rise 10% for the next six consecutive auctions, this season’s payout will remain low.

“Most of GDT sales are forward contracts so a lot of products have been sold at low prices; we are happy with the two consecutive price rises but they have to be maintained.”

The last GDT auction overall price index lifted 10.9%; whole milk powder rose 12.1%.

Rabobank agribusiness research analyst Emma Higgins says while it’s been great to see prices on the GDT bounce upwards over the past two events, global dairy market fundamentals are still out of balance.

“We are still awaiting the global supply taps to be turned off, particularly in Europe as farmers continue to expand production after having their shackles removed following the unwinding of the EU quotas.  

“From a demand perspective, China is still whittling away excess inventory, while other importers outside China and Russia who have previously mopped up the oversupply appear to be stuffed to the rafters with inventory. 

“The good news is that the mechanisms to move these market place fundamentals have been triggered.  Overseas, farmers are beginning to feel the crunch of falling farmgate prices in key export regions, particularly in Ireland.  This is significant as low farmgate prices are the first step towards slowing supply growth – much needed in a market still awash with milk. 

“We are expecting a significant improvement in dairy prices by mid-2016 as the supply/demand fundamentals rebalance once excess stocks are whittled away and global production slows.”  

More like this

Nice speech, but...

OPINION: Publisher Stuff and lobby group Federated Farmers both like to preach about their respective high-minded virtues – Stuff, about “funding journalism”, Feds about “supporting our farming communities”.

A dangerous precedent

A proposal by the Timaru District Council (TDC) to extend setbacks in rural areas is raising eyebrows.

Praise for associate director scheme

Federated Farmers dairy vice chairman Richard McIntyre says the associate director scheme run by DairyNZ is awesome and he would thoroughly recommend it to anyone.


New investment in spirulina production

The Ministry for Primary Industries (MPI) Sustainable Food & Fibres Futures Fund will invest in a project to assess the viability of larger scale production of spirulina in New Zealand.


Lely offerings for the future

Dutch robotic specialist Lely launched a new farm management application called Horizon at its recent Future Farm Days 2020.


Dispelling wool's myths

Paul Alston believes that when comparing wool and synthetic carpets, wool wins every time.

Machinery & Products

Weeds in for a shock

WIith an increasing focus on reducing chemical herbicides, largely because of crop resistance and a potential build-up of residues, new…

V8 - a baler with a grunt

Following three years of testing with clients worldwide, Ireland-based manufacturer McHale has added a bigger model to its range of…

Virtual CV valuable tool

With a 12-year history of recruiting specialised operators from overseas to service the agricultural contracting industry, Hanzon Jobs typically brings…

» The RNG Weather Report

» Latest Print Issues Online

The Hound

Tough gig!

OPINION: This old mutt has a fair amount of sympathy for Ag Minister Damien O’Connor with the two associate ministers…

Cow killer

OPINION: The Hound was not surprised to hear well-known end-of-the-world doom-merchant ‘Dr’ Mike Joy is still as joyless as ever…

» Connect with Rural News

» eNewsletter

Subscribe to our weekly newsletter