Drought exercises minds

Farmers are sending stock to the works early.

The "Big D" - drought not dairy - is now consuming the attention of many in the agricultural community.

The hot, dry summer, which has made for a reluctant return to work after the holiday season break for many city dwellers this year, will unfortunately have an impact on farm production.

Coping with droughts is a reality for the rural sector.

It was, after all, the major 2012-2013 summer drought - the worst in seven decades - which impacted on dairy production, resulted in a shortage of product and contributed to a rise in the global dairy price which has since reversed due to an over-supply of inventory.

Whether farmers can expect this year's drought to have the same impact on prices as the previous drought is uncertain.

Other competing dairy producers from the United States and also parts of Europe geared up their own production after New Zealand's last major drought.

The expected shortage of supply is expected to have an effect on prices. But perhaps not to the last price peak.

Last Friday, the National Institute of Water and Atmospheric Research (Niwa) warned that large parts of the South Island were seeing "severely to extremely drier than normal soil moisture levels for this time of year".

In the North Island, affected regions are in the drier to severely drier stage.

In Westpac's fortnightly Agri Update, Michael Gordon says that for meat production the dry conditions are "unquestionably a negative factor.

"There are a growing number of reports of sheep and beef farmers sending livestock to slaughter earlier than usual, which is stretching meat processors' capacity and forcing prices lower. Early slaughter also means less than ideal animal weights."

Primary Industries Minister Nathan Guy is keeping a watching brief but the Government has yet to declare an official drought.

"This threshold would be reached when the lack of rainfall has an economic, environmental and social impact on farming businesses and the wider community," Guy said.

"Unfortunately, droughts are nothing new for farmers. Two summers ago, we suffered through the worst drought in 70 years and, last year, we had severe dry spells in parts of (North Island regions of) Northland and Waikato.

"It is a tough situation for many with this coming on top of a lower dairy payout.

"However, I know that farmers are resilient and have come through many challenges like snowstorms, earthquakes and commodity price fluctuations before."

The upshot is that farmers are being warned to carefully manage stock and feed levels.

The drought has added to the stresses on farmers. But they are resilient.

While dairy farmers in particular are facing pressure after Fonterra -- and other dairy companies -- slashed their forecast payouts to about $4.70 kg/milk solid (in Fonterra's case), the good news is that prices are continuing to firm at the GlobalDairyTrade auction.

Dairy prices fell by about 50 per cent last year as a result of global oversupply. This was in part due to the increased production out of Europe and the US. But also as a result of stockpiling in China and Russian sanctions on dairy imports.

Fran O'Sullivan is a business columnist for the NZ Herald, and Alexander Speirs (right) is a business journalist for Herald Business Reports.