Thank heavens for the rain. The warm, wet summer has been fantastic for growing grass, and our farmers needed that.

The same commodity slump that makes filling the car with petrol a pleasure right now has gone longer and deeper than most predicted. The global price for dairy has fallen 60 per cent since its last peak in 2013.

An El Nino drought would have been disastrous right now. But as plenty of sodden campers and festival-goers can attest, we appear to have skipped the much anticipated big dry.

Yesterday, on the back of good grass growth and lower production costs, Dairy NZ revised its break-even point for most dairy farmers down to $5.25 per kg of milk solids - from $5.40 a kg. But that's still a long way above the $4.15 per kg of milk solids Fonterra predicts it will pay out for the 2015/16 season.


This will be the second season of below break-even payouts and, with no sign of a recovery on the horizon, there is serious pressure going on those with high levels of bank debt.

The Reserve Bank says that at the end of 2015, New Zealand's collective agricultural debt stood at $38 billion - up 8.6 per cent from the previous year. About 10 per cent of New Zealand bank lending is to the dairy sector, which in turn accounts for two thirds of all agricultural loans.

The dairy boom saw a lot of new borrowing as land owners converted sheep and beef farms to dairy and expanded existing dairy farms. Banks have been willing to lend on the basis New Zealand's agricultural export outlook remains very strong long-term. But their resolve in the short to medium term is about to be tested.

Publicly, they remain committed to New Zealand farmers. It appears unlikely we'll see the kind of forced farm sales that shocked the nation in the 1980s any time soon.

Privately though, bank bosses will be concerned. There is pressure on across the Tasman, where our big four banks are based. The commodity slump has taken its toll on the Australian economy too.

As parent company profits are squeezed, the capacity of local banks to cut farmers a break on mortgage payments may fall. Lower interest rates will help. ANZ yesterday joined Westpac and ASB in picking two further cuts to the official cash rate this year.

The Reserve Bank has been reluctant to cut further because of the bubble risk that low rates perpetuate in the housing market.

International rating agency Standard & Poor's last week identified the housing bubble and the dairy slump as the twin threats to New Zealand banks - although you didn't need a Nobel Prize in economics to work that out.

The wider the gap grows between the productive, export end of our economy and the speculative, investment end, the bigger the risk of a major meltdown. Despite attempts to diversify over the years, and even with a booming tourism industry, there is only so long New Zealand's economy can sail on smoothly while our farmers are losing money.

Culturally, we are no longer the farming nation that once laughed along to Fred Dagg and Footrot Flats, but economically we remain as reliant as ever on the fickle patterns of the weather and the turning of the commodity cycle.