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Current as of 21/10/16 07:39PM NZST
Jamie Gray is a business reporter for the NZ Herald

Dairy farmers slowly emerge from price downturn

Craig Maxwell on his dairy farm in Paparimu, Auckland. Photo / Regan Schoultz
Craig Maxwell on his dairy farm in Paparimu, Auckland. Photo / Regan Schoultz

The mood down on the farm remains sombre, despite an encouraging lift in dairy prices over the past two months.

Craig Maxwell, who spoke to the Herald in August last year, said farmers are feeling a bit more confident these days.

Maxwell, who owns a 500-cow dairy farm in Paparimu just south of Auckland, was reeling last year after Fonterra announced a $3.85/kg milk price.

Eight key things to look for in Fonterra's result

"People have been asking, 'How are we going to survive?' It is basically battening down the hatches to get by until it improves," he said then.

Today, with a farmgate forecast milk price of $4.75 a kg - upgraded by 50c in August. With an anticipated dividend from Fonterra, the payout this year will put farmers in the black but not by much, given DairyNZ's estimated breakeven point is just $5.05.

There has been a big shift higher in international dairy prices over the last couple of months, but farmers remain guarded after a similar sized spike this last year proved to be short lived.

"The last few discussion groups that I have been to have been pretty sombre," Maxwell told the Herald this week.

"They are not making money," he said. "They are just keeping things ticking over, hoping that the price will keep increasing."

Maxwell said a couple more seasons like the one just passed would see a lot more people leave the sector.

But farmers like Maxwell understand the odds, and where New Zealand fits in the grand scheme of things.

The last few discussion groups that I have been to have been pretty sombre. They are not making money.
Craig Maxwell, dairy farmer

The New Zealand's dairy industry is unique in as much that it exports most of its production - 95 per cent.

Its competitors have inwardly focused dairy sectors, aimed primarily at feeding their own populations. For them, the export trade is secondary.

In contrast, New Zealand is responsible for about 30 per the world's internationally traded dairy product.

That means New Zealand farmers stand to win big time when world prices spike - as they did in 2013 when whole milk powder prices hit US$5245 a tonne. But local farmers - without a domestic market of any size to fall back on - feel the pain more acutely when world prices fall.

Maxwell said the sector had navigated its way through low prices before.

The difference this time around was the sheer duration of the downturn - two seasons in a row or three if the current strength of the market is not maintained.

"We feel it first - but we know that," Maxwell said. "It's just the duration of the low point that is the problem."

- NZ Herald

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