Fieldays arrives amid some pain in farming circles

Fonterra's view is that it expects the supply/demand anomaly to rebalance itself within six to 12 months. Photo / Lynda Feringa

Big buys at annual agricultural event are likely to be lower on the shopping list for some who are hurting, especially dairy farmers.

The 48th annual National Agricultural Fieldays begins tomorrow with farmers facing a raft of challenges, the most pressing being the slump in the price of New Zealand's biggest export - dairy.

Fonterra's dairy farmers have been on a rollercoaster ride over the past few seasons.

They enjoyed the giddy heights of an $8.40 payout per kg of milk solids in 2013/14 only to see the price crash to $4.40/kg the next season.

The season just past has been another one to forget, with the milk price coming in at just $3.90 a kg.

This season, farmers are looking down the barrel of $4.25 per kg milk price - $1 a kg short of break-even.

To make matters worse, the kiwi dollar - still buoyed by relatively high interest rates and an economy that is managing to grow at a reasonable clip - has remained unbowed by very low milk prices. The currency traded yesterday at US70.3c.

Low prices have been driven by a supply/demand imbalance, blamed mostly on European farmers producing too much after production quotas were lifted last year.

Demand has been slack from the biggest dairy consumer, China, and trade sanctions by the world's second biggest consumer - Russia - has meant more product flooding on to world markets out of Europe.

Fonterra's view is that it expects the supply/demand anomaly to rebalance itself within six to 12 months.

Aside from dairy, parts of the primary sector are performing extremely well, and apple export prices are expected to be up by 15 per cent this year compared with last.

Kiwifruit continues to enjoy a strong, post-Psa rebound.

The export beef sector has remained buoyant, but the same cannot be said for sheep meat, which has continued to disappoint.

ANZ rural economist Con Williams said efficiency and cost cutting was likely to take centre stage at Fieldays - an event that draws in 120,000 visitors from New Zealand and around the world over four days.

"Dairy is challenged and will remain that way for at least the next 12 months, from a services and product provision perspective," Williams said.

"Big capital items like tractors will be lower down the shopping list versus the essentials needed to keep things ticking over," he said.

"If you are spending less on capital items you are likely to be spending more on repairs and maintenance," Williams said.

"The theme at the moment is how much you can take out of your cost structure."

Rabobank's head of food and agribusiness research for Australia and New Zealand, Tim Hunt, said last month that the protracted downturn in dairy looked likely to extend into the 2016/17 season but that pricing would "get substantially better" in the medium term.

Hunt said the current downturn had surprised everyone with its duration - 21 months.

In the Reserve Bank's latest financial stability report, governor Graeme Wheeler said the level of problem loans in the dairy sector was expected to increase "significantly" over the coming year.

The bank noted that there had been relatively few forced sales to date which, alongside low interest rates and a positive medium-term outlook, had provided some support for farm prices.

Dairy has the lion's share of agricultural sector debt, having gone from $29 billion in 2009 to $40 billion today. DairyNZ estimates that about 30 per cent (between $11 billion and $12 billion) of dairy debt is carried by 10 per cent of dairy farmers.