Positive news but times still tough

PROFIT: Steve Bailey, Federated Farmers Bay of Plenty dairy chairman, says the milk payout could help farmers get into the black. PHOTO/JOHN BORREN

Bay of Plenty's dairy farmers have welcomed the profit rise and increased forecast milk payout announced by Fonterra this week.

But the sector remains hard-pressed after several years of low returns, said Steve Bailey, Federated Farmers Bay of Plenty dairy chairman.

And as one farmer noted, past milk-price volatility meant there were no guarantees Fonterra's latest forecasts would be met.

Fonterra announced a 65 per cent gain in full-year profit to July 31, 2016, of $834 million, up from $506m a year earlier.

Sales fell 9 per cent to $17.2b. The cost of goods sold - primarily New Zealand-sourced cost of milk, which fell about 13 per cent to $13.6b - and cost cutting, made up for a decline in sales.

But in good news for beleaguered dairy farmers, Fonterra this week also raised its forecast payout for the current season by 50c/kgMS to $5.25/kgMS, for a total forecast payout available to farmers in the 2016-17 season of $5.75 to $5.85, including forecast earnings of 50c to 60c.

"Absolutely it's starting to head in the right direction and it's a big lift over where we were last year," said Mr Bailey.

"The farmgate price is up. It's been a few years since we were even in the low $5, so to be talking of $5.25 at this time is a positive thing. But over the long haul, we're still way down on where we have been in other years."

But although Mr Bailey said he expected this would see more dairy farmers get into the black, there would still be some who were not covering the cost of production, and sharemilkers especially were finding it very hard.

He added that he had spoken to a lot of farmers this year, and that most were down in production.

"I haven't heard of too many dairy farmers whose production is up. So obviously, if your production is down, your income will be down as well."

ANZ rural economist Con Williams said the improvement in international prices was looking more durable than in the past two years.

Bay of Plenty dairy statistics 201-15

• The BOP has 8 per cent of New Zealand dairy herds, 7 per cent of dairy cows, and 7 per cent of total dairy land.

In other data, the Bay of Plenty has:

• $599 million value of milk production to economy.

• 3158 people employed in the dairy industry.

• 927 herds.

• 345,588 milking cows.

• 652 farm owners/operators.

• Source: Dairy NZ (most recent available data)

"I think that bodes well. There's no doubt it's positive and will help sentiment. And that is feeding through to things like the milk-price improvement. That will help the financial stress currently in the sector. Cash flow now looks to be getting pretty much back to breakeven for the average owner-operated dairy farm."

Tauranga dairy farmer David Jensen said Fonterra's profit was great, but not unexpected given its input costs of milk had been very low.

"But for farmers and especially for sharemilkers, it's all about milk prices. And while Fonterra has limited influence over the price, that is the bit that matters."