Record milk payout a possibility for Northland dairy farmers

Like other dairy farmers around Northland, Stephanie Mitchell is pleased with the revised forecast milk price for this season. Photo / Tania Whyte Photo / NZME

A revised forecast milk price could see Northland dairy farmers earn a whopping $810m should they receive the maximum of the estimates Fonterra announced following a solid start to its financial year.

The dairy giant has lifted and narrowed its farmgate forecast price range for 2021/22 from between $8.40 and $9 per kg of milk solids – up from between $7.90 and $8.90 predicted in September.

A payout of $9 per kg/MS would be a record and would bring in $810m to the Northland economy based on about 90m cu m of milk solids the region's dairy farmers supply to Fonterra each year.

If the final payout stays at the minimum $8.40, that will earn farmers $756m.

The highest milk payout they have received from Fonterra was $8.50 per kg/MS for the 2013/14 season, which was worth $765m.

Stephanie Mitchell of Seahorse Farm at Whangārei Heads is pleased with the narrowed forecast milk price, and said farmers would be able to spend their earnings on quite a few things, including complying with new rules.

She has had to install a new refrigerator unit that cost $15,000-$20,000 as well as absorbing other costs such as the rising price of fuel and fertiliser.

Mitchell has been farming for 31 years and at present milks 210 cows.

"Farmers have had a couple of bad droughts over the last three years, dry winters, so they'll be looking at having better water supplies like creating new dams, which we are certainly looking at."

Kevin Baxter, who milks 550 cows in Kerikeri, said farmers were looking at spending quite a bit of money on meeting compliance in terms of new freshwater policy and other environmental rules of which they have been caught unawares.

He said Ballance put the price of fertilisers up from December 2, in particular because of high demand globally and constrained supply as a result of extraordinarily high energy prices and China limiting exports.

The price of urea increased from $960 per tonne to $1190, SustaiN from $999 to $1239, potassium chloride from $910 to $1000, and sulphate of ammonia increased by $73 to $642.

In an email to its customers, Ballance general manager sales Jason Minkhorst said with the market moving on price and the balancing act the company was managing with material shipping delays, it did not have enough supply in certain lines to meet the potential swing in market demand.

As a result, he said Ballance must move prices to be in line with global pricing to ensure it has stock available.

Former National MP and Northland beef farmer Matt King said whenever there was a lift in the forecast of milk prices, the price of fertilisers went up.

"No one is denying milk payouts help the region and the country, because dairy farmers spend their money in town. A lot of them would want to pay off debts with interest rates low."

$810m could flow into the Northland economy if dairy farmers receive $9 per kg/MS for their milk. Photo / NZME

King said rates were another major cost for farmers, with a 240-280ha farm attracting $40,000-$50,000 in rates each year.

Apart from the normal payout, Northland dairy farmers could earn up to $9m based on 10c per kg/MS if their milk is deemed high quality by Fonterra.

The new payment will replace the current Farm Source Reward Dollars where each farm gets about $1200 for meeting a number of best-practice goals.

Fonterra will pay 7c per kg/MS if farmers meet four broad criteria. They need to put in place a Farm Environment Plan with at least three out of four best practices being achieved, and implement an Animal Wellbeing Plan developed with their vet.

They must also complete the DairyNZ Workplace 360 Assessment and achieve 100 per cent on the foundation level, and keep full and accurate farm records to be submitted by June 30, 2022.

An additional 3c per kg/MS will be paid for achieving milk-quality excellence for at least 30 days during the season.

An average dairy farmer with about 300 cows would earn more than $10,000 on top of the milk payout.

Fonterra chief executive Miles Hurrell said with a midpoint of $8.70 per kg/MS in forecast price for this season, it would contribute more than $13.2b to the New Zealand economy.

While Fonterra expected milk supply would be less than last season's, he said improved weather conditions and forecast milk collections supported the revised payout forecast.

"While we've seen demand soften slightly in China, global demand remains strong, and we think that will remain the case for the short to medium term."

Hurrell said the focus on New Zealand milk was paying off with customers. Fonterra recently launched its Mainland cheese range in Dubai's largest supermarket chain, which completely sold out, and the company was now looking at introducing it in other countries, he said.

Fonterra was also making strides in being the most carbon-efficient dairy producing nation on the planet, he claimed.

An example was treating water at the company's Maungatūroto site using a natural wetland which reduced water use on site by up to 25 per cent.