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Current as of 09/12/16 07:39PM NZST
Jamie Gray is a business reporter for the NZ Herald

DairyNZ cuts 'breakeven' milk price to $5.05 a kg

New Zealand's dairy farmers have been cutting costs rapidly - this means the milk price needed to break even this season has dropped dramatically. Photo / Dean Taylor
New Zealand's dairy farmers have been cutting costs rapidly - this means the milk price needed to break even this season has dropped dramatically. Photo / Dean Taylor

DairyNZ said cost cutting by farmers had helped to drag down its estimate of break-even to $5.05 per kg of milk solids from $5.25 previously.

The farmer-funded industry body said the prospect of an increased dividend from Fonterra and a steady farmgate milk price of $4.25 was good news for farmers with shares in the co-operative.

New Zealand dairy farmers have sharpened their systems and reduced costs through this sustained low milk price period, it said.

DairyNZ chief executive Tim Mackle said while the low milk price would continue to keep pressure on farmers this season, the industry's performance in cost-cutting on-farm meant break-even costs have been reduced.

The revised break even estimate for this year compares with $5.77 per kg in 2014/5.

The break-even cash price includes farm working expenses - excluding adjustments for unpaid management and depreciation - interest and rent, tax and drawings and nets off livestock and other income received.

Being able to reduce the break-even milk price tells us that dairy farmers have cut costs further than we thought.

DairyNZ chief executive Tim Mackle

"The reduced milk price has meant farmers have really fine-tuned their management and analysed their costs of production," he said.

This should bring the average farm working expenses back to an anticipated $3.55 per kg this season, the lowest level since 2009/10, he said.

Farm working expenses were sitting at $4.07 per kg in 2014/15, so the reduction has been equivalent to around $100,000 per farm, on average.

Mackle said the lower break-even price showed the resilience of local farmers.
"Being able to reduce the break-even milk price tells us that dairy farmers have cut costs further than we thought," he said.

Under the current forecast farmers will receive around $4.50 per kg all up in terms of milk income, including "retro" payments from last season and dividends.

Fonterra on Monday stuck with its farmgate milkprice for 2016/7 of $4.25 per kg of milk solids and said it expected its earnings per share in the year ahead to be in a 50 to 60c range.

All up Fonterra expects the payout to farmers to be in a range of $4.75 to $4.85 per kg range in 2016/7.

Chairman John Wilson said the earnings per share range reflected performance improvements across the business, which would be welcomed by farmers.

However, with the farmgate milk price forecast remaining at $4.25 per kg it was going to be another "financially challenging" season for farmers, he said in a statement.

Fonterra's NZX-listed units last traded at $5.92 - up 13c from Monday's close.
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- NZ Herald

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