Northland dairy farmers' optimism rises with latest forecast milk price

Tangiteroria farmer Jim Rhynd is cautiously optimistic milk prices will recover from here on. PHOTO/JOHN STONE

An increase in the forecast milk price to above $5 per kilogram has lifted the morale of Northland dairy farmers, with debt repayment and stalled maintenance work their top priority.

Fonterra last week bumped its 2016/17 forecast farmgate milk price by 50 cents to $5.25 per kg of milk solids after a reduction in global milk supply and stable demand.

The new forecast price will bring $45 million more or $472.5m into the Northland economy - up from $427.5m farmers would have received based on the farmgate price of $4.75 per kg.

When combined with the forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total payout available to farmers in the current season is forecast to be $5.75 to $5.85 before retentions.

Tangiteroria dairy farmers Jim and Sue Rhynd have been farming for the past two decades and reckon the past two years have been the toughest.

"We'll get back to maintenance work and reducing our debt. We do have a nice spring, the cows are milking well so there's confidence on the production side of things," Mr Rhynd said.

The couple milk 200 cows once a day.

He said while some dairy farmers were able to keep their cost of production down to $4 a kilo, most of them could not do it below $5.

"It's [milk price] is still below US$3000 a tonne on the global dairy auction so the market is still fluid out there but we're heading in the right direction."

Mrs Rhynd said it was good to see optimism during volatile times in the dairy sector.

"There has been a lot of pain over recent years so there is going to be quite a recovery time for a lot of farming businesses even if these forecasts make it to the finish line," she said.

Federated Farmers Northland president John Blackwell said the latest forecast price has lifted morale in the dairy sector.

"The problem is farmers have put all their expenses on hold, including fertiliser and maintenance, so this [latest forecast price] gives them confidence to do that work and not necessarily expand their business.

"We can see light at the end of the tunnel now. Prices are tending in the right way," he said.

In the Federated Farmers' Farm Confidence Survey conducted in July, Northland farmers believed the situation with respect to the economy, their ability to spend on their farms and recruit labourers, and their ability to repay debt would stay the same.

Their biggest concern was commodity and farmgate prices followed by regulation and compliance costs.

Fonterra chairman John Wilson said since the company last reviewed its forecast milk price in August, milk production in key dairying regions globally had reduced in response to low prices.

"While we have seen some improvement in GDT auction prices recently, the high NZD/USD exchange rate is offsetting some of these gains.

"There is still volatility in global dairy markets and we will continue to keep our forecast updated for our farmers over the coming months," Mr Wilson said.