Northland dairy farmers running at a loss

The low milk price could force some debt-strapped Northland dairy farmers to sell up, an industry leader warns.

Northland dairy farmers are losing up to 75 cents on every kilogram of milk solids produced, and the low farmgate milk price will force more Northland dairy farmers to quit as the burden of debt becomes too heavy to bear, an industry leader warns.

Federated Farmers of New Zealand Northland president, John Blackwell, said a forecast price of $4.25 per kg for 2016/17 announced by Fonterra this week would still be lower than the cost of production which was over $5/kg.

Fonterra has stuck with its farmgate milk price for 2016/7 of $4.25/kg MS and said it expected its earnings per share in the year ahead to be in a 50 to 60c range. Fonterra expects the total payout to farmers to be in a range of $4.75 to $4.85/kg range in 2016/7.

The farmgate forecast price for 2015/16, announced in August last year, was $3.85 and Mr Blackwell said this was the fourth year dairy farms in Northland had been running at a loss, which put huge pressure on farmers and their staff.

"Some farmers do have low costs but they are in the minority. Some will have to get out of the industry," he said.

Mr Blackwell said Northland dairy cows were currently worth less than beef cows.

"The length of time this (low price) is going on is the problem. Originally, it was supposed to last one year but it's been four years so it's very hard to hold off something like this for this long," Mr Blackwell said.

"The low prices are probably affecting sharemilkers more than established farmers and more people will exit the industry."

He said the only highlight was that the beef industry was doing well presently, with autumn-born calves weighing about 120kg fetching $600, which was a "fairly good" price.

Mr Blackwell said another important factor to note during low milk prices was the inability of banks to further hold off loan repayments.

Fonterra chairman John Wilson said the dairy giant understood the farmers' plight and was focused on delivering as much cash as possible to farmers by bringing payments forward while maintaining a strong balance sheet.

He said the $4.25 farmgate milk price reflected the continuing global uncertainty, and the high New Zealand and US dollars which continued to impact on the competitiveness of New Zealand dairy exports.

"The recent weakening of the Euro, combined with the continued strength of the New Zealand dollar, has meant a price advantage for European export dairy products.

"We expect global milk supply and demand to come into balance over the course of this season. Farmers globally are producing less milk in response to lower prices and we are forecasting a 3 per cent reduction in our New Zealand milk collection for this season."

Fonterra CEO Theo Spierings said returns from the ingredients, consumer and food service businesses continued to grow in-line with Fonterra's business strategy to convert more milk into higher returning products.

"We are seeing the benefits of our investments in manufacturing over recent years.

"We now have more flexibility to make the right products at the least cost, delivering better returns for our farmers' milk."