Farmers may not get July payment after price drop

Fonterra is rebalancing after the fall in prices. Photo / Christine Cornege

Fonterra farmers have been tipped to go without a "retro" payment in July as the co-operative rebalances to reflect the fact higher amounts were paid early in the season when prices were more buoyant.

Miles Hurrell, group director of co-operative affairs, said extreme volatility in global milk prices had seen GlobalDairyTrade prices vary by 42 per cent since August last year.

"As a result, our milk price has been revised down during the season, meaning our farmers have been paid for a proportion of their milk at prices higher than the current forecast," Hurrell said.

"We have remained in touch with our farmers throughout the year to update them on market conditions.

"We appreciate this is a tough time for farmers and cashflows will be tight through winter, and will continue to keep them informed on the outlook and expectations for the remainder of the season."

The trade publication Dairy Trader said that for a farmer with 100,000kg of annual production, it appeared the July payment would be nil, the August one about $12,000 and the September and October ones about $5000, plus payments for new season's production.

That compared to as much as $200,000 an average farm was paid in top-ups from July to October last year.

Mike McIntyre, head of derivatives trading at First NZ Capital, said farmers would face cashflow problems in the months ahead.

"While all and sundry have been aware that tough times are ahead, to see the numbers laid bare like this will have many observers of the New Zealand economy sit up and take notice," McIntyre said.

The Reserve Bank this week said increased dairy farm foreclosures looked likely if product prices remained weak.

The central bank, in its latest financial stability report, estimated that about 30 per cent of dairy debt was concentrated among the most indebted 10 per cent of farms.

The bank does not keep data on the number of farm foreclosures, but information in this week's Financial Stability Report showed rural non-performing loans represented just 1 per cent of sectoral lending in the year to March, down from a peak of about 4.5 per cent in 2011.

The Reserve Bank said around 11 per cent of farm debt was held by farmers who were experiencing both negative cash flow and elevated loan-to-value ratios.

"This would seem a fair assessment of those who might be under stress in 2015/16," said one market commentator.