Recovery a way off yet

However, his key message to dairy farmers is not to put off decisions that inevitably have to be made and that it’s critical they talk with their advisors and bankers.

“When you say the average breakeven point for a farmer is $5.50kg/MS, and we’re going to have two seasons going deep below that, we won’t get back to the $5.50 for the 2016-17 season, which we see as challenging,” he told Rural News. 

“You end up looking at how long it is going to take for farmers to recover the equity they had in that business at the start of the season just finished. Realistically you need a number of seasons above that long term average to recover that equity.” 

Proudfoot says the pressure facing the dairy industry will force people to look at how they farm. 

He says they will look at a wide range of opportunities beyond dairy that may offer better and more profitable solutions – especially in parts of the country where environmental pressure is increasing.

He says many farmers are getting rid of low performing cows and this may put pressure on the price of cow beef, which is essentially a commodity product as opposed to prime beef. Farmers may also stop using PKE.

“I was in Ashburton recently and one of the stories we were hearing was that arable farmers who had been highly focused on producing grain for the dairy industry for feed were starting to think a lot more widely about what business they could be in.” 

But Proudfoot says re-converting a dairy farm which may have cost several millions of dollars is probably not an option; he says instead that farmers will do such things as culling cows early, rearing calves and perhaps buying in stock they can finish quickly, as a way of making extra revenue.

Banks will take a pragmatic view

Ian Proudfoot can’t see how banks, in some circumstances, can avoid foreclosures, particularly where farmers were struggling to make ends meet on an $8.40 payout. 

“It’s better for the industry that some of those hard decisions are made because what those operators could end up doing is putting the industry at risk by cutting corners that are unacceptable -- that cannot be cut,” he says.

But Proudfoot says the problems in the dairy industry are unlikely to put much downward pressure on land prices. International interest in buying land hasn’t gone away and he reckons investors are likely to consider a time horizon of 25 years, not two years.

Proudfoot has a word of warning – US dairy! 

He says while European farmers have been vocally protesting about low dairy prices, it appears that the US is prepared to take lower prices as part of a long term strategy to get a bigger share of the global market.