Experts predict local farmers may quit dairy

Fonterra is predicted to pay farmers $3 or $4 per kg of milk solids next year after whole milk prices dropped at the GlobalDairyTrade auction. Photo / Michael Cunningham

A further drop in milk prices could force Northland dairy farmers - already bracing for a predicted payout in the low $4s for next season - to reduce their stock and find alternative sources of income.

Whole milk powder prices dropped by 10.3 per cent to US$1590 a tonne at yesterday's GlobalDairyTrade auction, fuelling fears payout to farmers for the 2015/16 season would drop to the low $4s, or at worst the high $3s - well below the previously estimated break-even point of $5.70 per kg.

In May, Fonterra announced a forecast farmgate price for next year of $5.25 per kg of milk solids.

The dairy giant will tomorrow review that price and industry experts and farmers are predicting the forecast to drop to anywhere in the high $3s or the low $4s.

Federated Farmers of New Zealand has warned Northland dairy farmers could be forced to take out more loans, reduce their stock, or find alternatives such as beef farming if they received $3 or $4 per kg of milk solids. Whole milk powder prices at the global auction are key to determining Fonterra's farmgate milk price.

Ruawai dairy farmer and former director of Fonterra board Greg Gent said Northland farmers were facing the effects of an $8.40 payout they received in 2014 which earned them $748 million.

"Dairy prices always over and undershoot in terms of their volatility but the biggest issue for Northland dairy farmers is how long will the current prices last?"

He said factors such as climate and exchange rates also played a part in dairy payouts.

When asked how long low prices were expected to last, he said: "The weather is easier to predict than dairy prices."

Mr Gent expects the revised forecast for next season to be in the low $4s. He said another low payout could pave the way for small-scale dairy farmers in Northland to exit the industry.

Federated Farmers Northland dairy chairman Ashley Cullen said he would be "very surprised" if next season's payout forecast exceeded $4.

"Sadly prices at the auction haven't reached the bottom yet and, after Friday, there'll be a lot of soul searching as to what farmers are going to do next.

"Farmers will borrow more and put pressure on everyone ... banks, supporting businesses and the like. Some will rear fewer calves and more Friesian bulls because they fetch good prices at the moment," he said.

Mr Cullen, who milks 200 cows on his Maungaturoto farm, said another option for dairy farmers would be to reduce their stock by up to 10 per cent.

In May, Fonterra announced the latest milk price forecast of $4.40 per kg of milk solid for this year - a reduction of 10 cents from its earlier forecast of $4.50 per kg.

The small reduction will slash $356 million in milk money from Northland's economy this year if $4.40 is the final payout next month. Fonterra is blaming the lower forecast to an over-supply of dairy products in world markets.