Bank of New Zealand is watching dairy prices closely but has faith in farmers' ability to manage finances through dips in the commodities cycle, says chief executive Anthony Healy.
At the last GlobalDairyTrade auction, the price of whole milk powder traded at US$2503 a tonne - about $1000 short ofthe price required if Fonterra is to achieve its farmgate milk price forecast of $5.30 a kg of milksolids for 2014/15.
Bank economists say many farmers would have trouble covering their cost of production if the farmgate price fell to the mid $4 a kg.
"I would look at a couple of years ago when the farmgate milk price was at a similar level and we had a drought," Healy said.
"Our portfolio proved to be resilient through what was a real stress test of the balance sheet. Farmers are very good at managing through those difficult periods."
The bank has about 22 per cent market share in the sector and about $7 billion of its $12 billion in agri lending is to dairy. The BNZ yesterday reported a 2.4 per cent increase in annual cash earnings to $805 million on a 3.1 per cent lift in net interest income to $1.51 billion.
