Milk price slump: DairyNZ sees 12-18 months of reduced income for farmers

DairyNZ has revised down its break-even milk price to $7.51 per kilogram of milk solids (/kgMS) from $8.16/kgMS, reflecting adjustments that farmers have already made to reflect sharply lower milk prices.

The industry group also said farmers could expect 12-18 months of reduced income due to the current poor state of the market.

The move follows this week’s Global Dairy Trade auction, which saw prices slump by 7.4 per cent, led by a 10.9 per cent fall in whole milk powder to a near five-year low of US$2548 a tonne.

The mid-point of Fonterra’s farmgate milk price range currently stands at $7/kgMS.

DairyNZ’s head of economics, Mark Storey, said many dairy farmers will be finding the current milk price and inflation issues difficult to take.

How to navigate this season’s reduced income will be causing real concern on many farms, Storey said.

“We know dairy farmers have a difficult season ahead, in light of the reduced milk price and continuing high farm costs,” he said.

“The break-even milk price is one tool we have to support farmers right now, as it helps identify and forecast average costs.”

Storey said the revised break-even figure reflected the changes farmers are making now.

“The updated break-even milk price reflects that farmers are working really hard to reduce their spending in the face of extremely high costs,” he said.

“We know farmers are looking at budgets line-by-line and analysing where spending can be reduced, including pausing non-essential capital expenditure and carefully evaluating feed, fertiliser and other spending”

The break-even milk price of $7.51/kgMS is above DairyNZ’s forecast revenue of $7.34/kgMS for the season, and above Fonterra’s midpoint forecast of $7/kgMS.

“This means some farmers will make a loss this season, so the focus will be on maintaining business viability,” Storey said.

“This will also have significant flow-on effects to New Zealand’s regional and national economy,” he said.

“Every farm is different, so we encourage farmers to look at their own situation and what changes can be made.”

DairyNZ’s general manager of farm performance, Sarah Speight, encouraged farmers to look at their own situation and what changes can be made.

“Given the further drop in the Global Dairy Trade this week we are looking at 12-18 months of reduced income, so it is important to consider changes carefully,” Speight said.

She encouraged farmers to talk with their farm teams, advisors and DairyNZ’s regional teams for support and advice.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.