Farmers feel pressure as world prices drop

HARD TIMES: Whanganui farmer Bruce Cave is running his business at "a considerable loss".

The latest low milk prices are hitting the region's dairy farmers hard.

"How we are going to get through I don't know," said John Hammond, who farms near Ohakune.

Bruce Cave, farming in coastal Westmere, said he didn't know what he and wife Annette were going to do either.

"We are running at a considerable loss and there's very little more that we can do about it."

This month world prices for a kilogram of milk solids dropped again. New Zealand's biggest dairy co-operative Fonterra is now paying just $4.15 a kilogram when it costs most farmers much more than that to produce.

The break-even price for most is somewhere between $5 and $6 a kilo, with an average of $5.40. Farmers holding a lot of debt need a higher price to break even or make a profit - otherwise they are going backward financially.

Last year DairyNZ said 49 per cent of dairy farmers made a loss. This year it predicts 85 per cent will do so. Dry stock farmers can put away their cheque books in a year of low prices, Mr Cave said, but dairy farmers have to keep shelling out to maintain production.

"On a dairy farm you've got a much higher input level - you can't just put your cheque book away."

He has reduced supplementary feed for his herd of 1150, but must keep irrigating to keep the grass growing. He hasn't culled any cows yet, but will have to get rid of those most prone to mastitis.

He's cut the amount of fertiliser applied, and dried off his autumn herd early. But if he takes the rest to once a day milking he'll lose about 20 per cent of production - and his herd is the high-production Friesian breed prone to mastitis unless milked often.

He's glad he paid off some debt when the price for milk solids hit a record $8.40 per kg in the 2013-14 season.

Added to his other problems, it's been a dry season for the barley and fodder beet he grows for supplementary feed.

It's the other way in the Waimarino, where Mr Hammond's farm is having a fabulous season with plenty of rain.

"On the farm things are going wonderfully well - we just need to be paid for it," he said.

People were working for $5 an hour or less, and he was having monthly meetings with his supportive bank.

The unexpectedly low milk price makes him worry for the whole industry. He said the financial pressure would be worse for sharemilkers than farm owners, and he predicts some will go bankrupt or leave - and not because they lack ability.

The low price would affect land value, which in turn affected the amount farmers could borrow in a "cruel, vicious cycle".

He blamed the United Nations for the low price because its sanctions had stopped milk sales to Russia. Mr Cave blamed subsidised over-production in the United States, Canada and Europe, and he said the Trans-Pacific Partnership would not help.

"Apparently there's very little in it for dairy because Canada and the United States are so stuck on their subsidies."