Hard discussions are being had within the North Otago dairying community as Fonterra ‘s GlobalDairyTrade auction prices continue their downward trend.
A further slump has seen ANZ drop their forecasted payout to $4.85, down from their previous forecast of $5.25.
James Christie, ANZ regional manager South Canterbury North Otago said the bank has been fielding calls from farmers concerned about the potential for the payout to continue dropping.
“There is definitely quite a lot of concern out there,” Mr Christie said.
“We are advising farmers to look at the things they can control, obviously they can’t control the payout, and we’re still taking a long term approach.”
“A lot of farmers will have a cost structure in the mid$3/kgms-mid$4/kgms range, they’ve got to pay interest on top of that, which leaves about $1/kgms to pay interest.”
“The effect of this will be quite individual and we encourage our farmers to review their plans and understand what the changes mean for their business.”
Mr Christie said strong deferred payments have meant that cashflow for this financial year is “not looking too bad”, however there will be a negative impact from winter 2015 onwards.
North Otago Federated Farmers president, Richard Strowger, said Fonterra has been advising that they are facing downward pressure and the company is sending a clear message to farmers.
Following Fonterra’s most recent payout announcement of $5.30/kgms, Mr Strowger said that in true terms it meant the average dairy farm has lost $620,000 worth of income against last season. He advised yesterday that this figure could now be more significantly affected.
“The rest of the community need to have a think as this is money that is now just not going to be spent,” he said.
“I would say most farmers would have done budgets in the $5.50/kgms-$6/kgms range but I don’t think too many would have put a four in front of it.”
Farmers have two main costs, feed and labour he said, and while they will have to absorb the implications of the low payout in the short term, if it continues for a couple of years then longer term changes will be necessary.
“They’re already minimising their losses now but a $4.85 payout may mean redundancies.”
“They’ll have to think about rolling up their sleeves and doing it themselves.”
Not all of Fonterra’s product is put forward at auction, Mr Strowger said, and he would like to think that the company had other long term contracts to safeguard shareholders.
“I think most people are still upbeat, still believe in the industry and believe in the longer term it will recover.”
By LINDA MCCARTHY