Impact of cashflow crunch will be on farmers' minds at Fieldays

Those in the dairy industry see the current downturn as being cyclical rather than a structural problem. Photo / NZME.

Farmers at this week's Fieldays at Mystery Creek will have cost control and innovation on their minds as they try and mitigate the impact of a cashflow crunch caused by sharply lower dairy prices.

Beef farmers, and to a lesser extent sheep farmers, are enjoying strong prices, but they will not be immune from below-average farmgate milk prices as they are often involved in grazing and providing supplementary feed for dairy.

There is one saving grace - the New Zealand dollar is continuing to retreat against the US dollar, albeit slowly. The same cannot be said for the kiwi's strength against a very low euro, which is affecting returns for euro-sensitive venison, sheepmeat, kiwifruit and apple markets.

A still weaker kiwi would clearly help, and a lower official cash rate from the Reserve Bank would be a welcome disincentive for yield-seeking international investors who have played a part in keeping the currency elevated.

Economists don't expect a rate cut this week, but reductions later in the year are looking more likely.

Westpac said last week's 4.3 per cent fall in the GlobalDairyTrade auction index price was surprising and important.

Prices are now down almost 30 per cent from February's short-lived price spike, and Westpac has downgraded its forecast of Fonterra's farmgate milk price for 2015/16 to $5.40 kg.

Fonterra's own forecast of $5.25 carries important implications for advance payments to farmers in spring, Westpac said.

"Farm cashflow has actually been quite reasonable until recently, but is about to drop off a cliff," the bank said.

Payments to Fonterra suppliers and shareholders over July, August and September 2014 totalled $2.53 billion. Over the same months of 2015 payments will total just .58 billion and Westpac said there was "growing angst" about an impending cashflow crunch.

Those in the dairy industry see the current downturn as being cyclical rather than a structural problem.

"We don't see this as a structural change," Rabobank's dairy analyst Hayley Moynihan said. "But it is certainly a more prolonged trough than we have seen in the past." Rabobank's view is that dairy supply and demand will move more into balance in 2016.

Moynihan said innovation would be an important theme at Fieldays.

"Innovation will be a big component, particularly given the pressure on costs," she said. "Farmers will be looking at better and easier ways of doing things as well."

Dairy NZ chief executive Tim Mackle expected Fieldays to have a strong focus on ways to take costs out without compromising medium- and long-term prospects.

"Times like these are when you get the greatest rate of innovation from farmers," he said. He agreed with Moynihan that the problems facing the dairy sector were cyclical.

"I think it is cyclical and the volatility curves show that. It's just that the wave's length - the period between the trough and peak - could be longer this time," he said.

Fieldays, the Southern Hemisphere's largest agribusiness event, pushes itself as a forum for the industry to keep abreast of the latest in research and development.

"We recognise that Fieldays must continue to evolve and adapt if we are to remain relevant and connected to New Zealand's agri tech and agribusiness sector," Fieldays chief executive Jon Calder said.

Almost 900 exhibitors will be presenting to an expected audience of 125,000 over the four days of the event, which starts on Wednesday.