Prices drive down milk output

MyFarm executive director Andrew Watters will cull more cows and cut back on feed supplements.

Dairy production tipped to fall as focus on efficiency sees less intensive use of land.

Fonterra's forecast of a 2 per cent fall in milk production this season is looking more conservative by the day as farmers cull stock and adopt less intensive farming practices.

DairyNZ estimates milk production will fall by at least 2-3 per cent this season, as farmers focus on improving efficiency. The number of cows going to meat processors is up 21 per cent, more than 185,000 on the last year ended May 31.

A decline in production will not be a moment too soon as the market continues to suffer from low prices, brought on by oversupply and slack demand. In the season ended May 31, production was up 3.6 per cent to a record high, having increased by 10 per cent the previous year, also to a record.

MyFarm, one of the country's biggest farm owners with about 40 farms and 30,000 cows, said it would be culling more cows, reducing off-farm grazing, cutting back on feed supplements and putting fewer cows on the land. Together, the measures would strip out about 50c a kg in costs.

In part, the moves recognised that the previous, more intensive, model was not sustainable, said MyFarm executive director Andrew Watters.

"As a result of the system change, we will have fewer cows, and slightly lower milksolids per cow, and quite a bit less milk," Watters said. "Fonterra is forecasting that milk production will be about 2 per cent down this season, but I think it will be a lot more than that - maybe 5 or 6 per cent, because of some of these changes."

Watters said the changes were not a one-off, and were likely to be in place over the next four or five years. He said the "milking platform approach", using off-farm winter grazing and moderate amounts of feed supplements had worked for the past 8 to 10 years but that the costs of doing so had gone up quicker than the milk price.

MyFarm said it was actively discussing with investors "winding back the clock" to a different farm system that better suits lower, or more variable milk prices.

Fonterra this month cut its farmgate milk price to $3.85 per kg of milksolids, from a previous forecast of $5.25, and added a 50c per kg support package in the form of a soft loan. Watters said MyFarm would be taking up the 50c/kg support offer.

"That's a good initiative and should be one of the benefits of being a supplier/shareholder," Watters said. "Obviously, the current situation is very tough indeed, but for most farmers there are some positive options that they can take.

"I think that many farm systems ended up with costs that were perhaps, in hindsight, not sustainable."

He said the solutions that farmers brought to bear would differ depending on the type of farm and region.

Measures adopted by MyFarm would not result in huge cost savings this year, but would set its farms up well for next year and beyond, he said. As it stands, about 40 per cent of a typical MyFarm property's budget is taken up by supplementary feed costs and off-farm grazing.

"Our winter grazing costs are too high, so we are going to keep some or all of our cows at home," he said. "In our case, we can grow a crop like fodder beet to do that."

The new approach will mean the land will be farmed less intensively. A typical 200ha farm will carry 525 cows, down from 600. The company will cull more than 3000 cows more than the norm, and earlier in the year.

The weather may also play a part in inhibiting production this year - a strong El Nino weather pattern is expected to occur, which could bring drought to the eastern areas of the North and South Islands.