Challenge in return to low-cost model.

There is no "get out of jail free" card for dairy farmers in the current dairy downturn, but the sector has nevertheless shown resilience and an ability to work its way through what looks likely to be three years of very low milk prices, says ANZ Bank rural economist Con Williams.

The latest GlobalDairyTrade auction showed that dairy product prices were steady, but with the stark exception of the most important product for New Zealand producers - whole milk powder, which dropped by 4.5 per cent to US$2118 a tonne.

A recovery to US$3000 a tonne in whole milk powder would see farmers and their bankers start to breathe easier.

Williams said at Fieldays that the next few auctions for whole milk powder were likely be important in determining the trend for the rest of the season. Fonterra's forecast milk price for 2016/7 sits at $4.50 a kg - which is $1 a kg lower than DairyNZ's estimate of breakeven.


The downturn has not made its presence felt on attendance at Fieldays, with the numbers through the turnstyles only 200 down from this time last year. Around 120,000 people attend the four-day event.

"There is a realisation that there is no get out of jail free card here," Williams said. "They have become more resolute and stoic about trying to address the current situation, and that's really about focusing on what they can control, and that's productivity, cost efficiency and management efficiency with their business."

Williams said farmers needed to ensure their survival while at the same time making sure they left room for margin improvement when conditions do improve.

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ANZ is New Zealand's biggest rural lender and dairy debt has grown strongly in recent years.

Ross Verry, general manager of agri at ANZ, said the bank's internal data showed that farmers payments - aside from interest payments - were going down.

The bank's managing director for commercial and agri, Mark Hiddleston, said farmers started working on their efficiency 12 months ago when it looked like low prices were likely to stick around for a while, with many turning to technology to streamline their operations.

"When we talked to the farm software companies, when the payout went down, the usage of their technology software went up by 400 per cent overnight."

He said that showed farmers were willing to adjust and plan.

Williams said the challenge facing the sector would be in returning to a low-cost model.

"We are going to see how low-cost producers can be when you are at the bottom of the cycle and how resilient the farming community is at the bottom of the cycle," Williams said. "... I would not count them out in terms of their ability to navigate their way through."