As my Fed Farmers dairy chair colleague Andrew Hoggard says, this latest auction suggests there might be some light at the end of the tunnel but what the industry needs is for this to continue and hold.
However, the cyclical nature of commodities means neither farmers nor contractors should expect plain sailing in future auctions, but we can all hope this is the start of a more positive trend
Many analysts believe the price rose because Fonterra cut its GDT offering by 33.5% for the auction and they warn that global markets were still oversupplied. According to dairy analyst Susan Kilsby, Fonterra’s milk price forecast for the 2016 year of $4.25 is now looking achievable, but she says dairy commodity prices need to continue to track upwards to reach the current forecast price.
Rural lending specialist Rabobank believes that while the sector is experiencing a severe cyclical downturn, a “substantial” improvement in prices is still expected by mid-2016. In a report to its clients last month Rabobank said while the dairy sector is currently experiencing a severe cyclical downturn, it believes the mechanisms that will turn the market around have now been triggered and a substantial improvement in prices is still expected by mid-2016.
So let’s hope all these predictions of an upturn in dairy prove to be correct.
In the meantime farmers and contractors have to deal with the reality of the low forecast price. This is going to mean tight budgets and little discretionary spending.
But the fact remains dairy farmers are still going to be putting milk in the vat and having it carted off the farm by tanker, which means they are still going to need pastures and crops prepared and sown, hay and silage made, and maize harvested.
We at least now know where we are with the much anticipated Fonterra forecast payment. A price of $3.85/kgMS ($4.25 when dividend is included) is a shocker. Few farmers – and by extension rural contractors – will make anything on that payout.
That said, what can realistically be done about helping contractors through the tough times ahead for at least the next few months?
First, keep up communication. Talk to your bank manager. Talk to advisers. Talk with suppliers and customers. Put a bit more effort into communication with the family, staff and fellow contractors – they will be feeling the pressure as well.
Many contractors will be feeling under pressure and the stress is starting to tell on them and their businesses. Our advice is simple: ask for help and talk to the appropriate agencies before things get out of hand.
If there are any rural contractors struggling to pay bills and/or staff they should get in contact with Work and Income NZ and the IRD for assistance and advice. Both IRD and WINZ are there to provide help in these situations and they have the people and expertise to offer advice and assistance.
Rural Contractors NZ is also here to help members and to act as a support network for contractors who are feeling under pressure. However, we are not experts in financial matters or whether people are coming under mental duress.
What we are telling people is they should be talking with their accountants and financial advisors about their business and with their families and/or medical professionals if they are feeling under pressure themselves.
The short term is the focus at the moment – even if it means looking for extra work outside normal rural contracting jobs to help manage to get you and your staff through to next season.
So my key take-home message would be to keep up the communication. Talking with the appropriate professionals – as well as family and friends – is an important step in getting the right advice and help when and where it is needed.
• Wellsford-based agricultural contractor Steve Levet is the president of the Rural Contractors New Zealand (RCNZ).
