Farmers fear rough ride coming up, with low dairy payout and prospect of drought

Irrigation in South Canterbury had made a big difference but the water levels were running low and a "crunch point" was looming for the Opuha Dam. Photo / NZME.

Farmers are "battening down the hatches" as they prepare for a low dairy payout this year and as a full-scale drought approaches South Canterbury and North Otago, says Federated Farmers president William Rolleston.

He said as the outlook turned progressively negative, farmers were cutting spending, which would affect the wider economy.

"I think that people are just basically battening down the hatches because of the dry weather and because of the dairy payout," he said.

"There is not a lot of spending going on. Farmers are closing up their chequebooks, which will affect Queen St I'm afraid."

Rolleston, a South Canterbury farmer, said he expected the Government to declare an "adverse event" in South Canterbury and North Otago if the region did not receive rain within the next month. Other parts of the country, such as Marlborough and the Wairarapa, were also drying out.

Minister for Primary Industries Nathan Guy visited the region this month but stopped short of declaring an "adverse event", which opens the door for farmers to assistance.

Rolleston said the prospect of the 4.70 a kg farmgate milk price forecast by Fonterra, compared with last year's record price of $8.20 a kg, would have a generalised impact, not just on dairy farmers but on "dry land" farmers who offer dairy grazing.

He agreed with ANZ economists that dairy farmers could handle one low-payout year, but not two in a row.

Outside dairy, Rolleston said better sheepmeat and beef prices, while an improvement on recent history, did not offer a "bonanza" for farmers.

The prices were strong "but not fantastic", he said. "We have had above break-even results, rather than spectacular results."

He said drought declarations came down to a matter of semantics.

"You can call it a drought from the first day it doesn't rain, but is it an adverse event?

"In South Canterbury and North Otago this has been building since July and farmers have been aware that this has been happening," he said.

"Dry land sheep and beef farmers have been getting rid of stock as early as possible. They have been making good decisions and early decisions."

Irrigation in South Canterbury had made a big difference but the water levels were running low and a "crunch point" was looming for the Opuha Dam.

The Rural Support Trust and Federated Farmers have been meeting with farmers, farm advisers and other rural professionals to assess the situation. In some cases, banks were already offering interest-only loan repayments, Rolleston said.

"What we have said is that we need to put all these measures in place as they are needed, not just because the Government comes along and says there is an adverse event."

Dairy NZ, and Beef and Lamb, have been holding seminars on feed budgeting in South Canterbury and North Otago because an issue for many farmers will be having enough feed for their animals over the winter.

On the positive side, Rolleston noted the kiwi dollar had become more exporter-friendly over the past year. The currency has dropped by about US14c, or 15.8 per cent, since last March to US74.5c yesterday.