Drop in milk price will affect region

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News that there was a sharp drop in Fonterra’s latest Global Dairy Trade auction means North Otago farmers could be looking at a pay cut next season.

Fonterra had reportedly forecast a farm-gate milk price of $7 per kilogram of milksolids for next season, however Tuesday night’s price drop of 8.9 per cent has resulted in a reaction from banks, with some lowering their forecast payouts to $6/kgms.

North Otago Federated Farmers dairy representative Lyndon Strang sees it as an over-correction in the marketplace and said hopefully it would right itself.

He said if the banks were forecasting $6/kgms, it would put a strain on some farmers, and those planning to carry out developments based on more optimistic forecasts could now get turned away.

“Most banks would require you to be fairly conservative,” he said.

While farmers are still being paid based on last season’s payout, they could simply put their hands in their pockets now and stop spending discretionary income.

“This could result in them delaying the purchase of big ticket items like tractors.

“Even though this is a check, it is not a doom signal.”

“We are entering a period of volatility and farmers should have planned for a drop.”

Mr Strand said long-term forecasts were, good with demand from places like Asia, Latin America and the Middle East looking set to far outweigh supply.

By LINDA MCCARTHY

PHOTO: SUPPLIED