Milk price puts farmers in 'make or break' crisis

A savage cut in revised forecast milk payout of $3.85/kg of milk solids has piled more financial pressure on Northland farmers ahead of a looming dry spell, with it fast approaching "make or break" time for many.

Dairy giant Fonterra yesterday announced a reduction in the farmgate milk price forecast from $5.25 in May to $3.85, saying the fall was due to continued significant imbalance between weak demand and surplus supply.

It has prompted a call from a Northland farming leader for Fonterra to be more open about plummeting dairy prices.

Whole milk powder prices dropped by 10.3 per cent to $US1590 ($1785) a tonne at Wednesday morning's GlobalDairyTrade auction, fuelling fears payout to farmers for the 2015/16 season would drop to the low $4s, or to perhaps the high $3s - well below the estimated break even point of $5.70/kg.

Fonterra board chairman John Wilson said although the current prices were unsustainably low and had begun to impact production levels globally, Fonterra was confident prices would recover over the course of the season.

But president of Farmers of New Zealand, Northlander Ian Walker, said Fonterra's board and senior management needed to be honest with their shareholders rather than painting a rosy picture of the global dairy market.

"The average production cost is about $5 and an average farm of say 300 cows producing 120,000kg of milk solids would be making a loss of $120,000 [on the forecast payout]," said the Kaitaia farmer.

He said over the past 10 years, Fonterra had been telling New Zealand dairy farmers the market for their milk products was good for the foreseeable future which prompted them to invest more in their farms.

"Suddenly our payout has more than halved. The governance and leadership of Fonterra should be adding value to the economy, to its shareholders and they've failed dismally," he said.

Federated Farmers Northland dairy chairman Ashley Cullen said the joys had already been taken out of farming.

"After the last auction on Wednesday, the writing was on the wall for quite a savage cut. Before that, $4.25 I thought was quite hopeful. Who's to know we haven't hit the bottom yet."

Mr Cullen said the next GlobalDairyTrade auction in a fortnight's time would "either make it or break it" for Northland dairy farmers.

"It's no use worrying about it because it's totally out of our control. We can only make the best out of a worst situation," he said.

Fonterra has also given share-backed farmers an opportunity to apply for financial support of an additional 50 cents per milk solid for production. The payment, interest free for two years, will be paid back when the farmgate milk price goes above $6.00/kgMS.