Although Taranaki farmers have welcomed Fonterra’s revised forecast milk price of $6, they’re still treading warily.The co-operative has just announced a 75-cent rise in the price it will pay farmers for each kilogram of milksolids they produce.
Taranaki Federated Farmers dairy chairman Donald McIntyre said the payout boost would please farmers, even though the wet winter and spring had affected farm performance.
While many farmers would be paid more for their milk, their production was likely to be lower.
The weather was a significant factor in this season’s lower production on his farm, where it was 20 per cent down. However, he was also milking fewer cows and was not feeding palm kernel expeller.
Matthew Newman says farmers are likely to use the increase in the milk price to reduce debt.
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Matthew Newman says farmers are likely to use the increase in the milk price to reduce debt.
While $6 was “bloody good”, he was still cautious about the future because he said the higher price might encourage European farmers to produce more milk, putting New Zealand farmers back in the situation they were just getting out of.
Fonterra shareholders councillor and Auroa dairy farmer Rob Poole said the revised forecast would cheer farmers up and help them dig themselves out of the hole they’d been in for the last couple of years.
They’d be able to catch up on deferred maintenance and to start reducing the debt they might have taken on in the last two seasons. “It will put them on the path back to where they were before this downturn.”
2015 Taranaki Sharemilker/ Equity Farmer of the Year Mel van den Brand said farmers were pretty chipper about the 75-cent rise, which was a significant improvement.
“Farmers have had to screw costs back,” she said.
The new forecast gave farmers spending options and they might choose to put money into herd fertility or animal health, for example, or into repaying debt. “It opens the toolbox so we can manage our business better,” she said. “There’ll definitely be a flow-on effect in town.
“But I don’t think farmers will go silly. They’ll still be cautious about their spending.”
Mayor and dairy farmer Ross Dunlop said the $6 farmgate milk price was great news for the South Taranaki district which was so dependent on the dairy industry. Any improvement in the milk price would flow through the entire community.
He said the light at the end of the tunnel was now apparent for dairy farmers who had endured two seasons of appallingly low prices.
Westpac Taranaki area agribusiness manager Rhys Fulton said the revised forecast would renew farmers’ confidence in the industry. Next month’s higher advance would improve their cashflow and would help them sort out their overdraft.
“If they’ve had to borrow money to get through, they need to sort that out before they let loose with their spending,” he said.
The extra payment would also allow them to catch up on deferred maintenance on effluent systems and tracks and in their cowsheds. “They’ll be heaving a big sigh of relief because they’ll be able to make a profit.”
Donald McIntyre says although farmers will receive more for their milk, their production is likely to to be down.
The weather had meant some farmers had a tough start to the season, so the better forecast would simplify on-farm decisions, he said.
DairyNZ senior economist Matthew Newman said Taranaki’s average 285-cow farm was expected to produce 105,000 kilograms of milksolids this season, meaning the 75-cent increase would generate almost $80,000 in extra income for that farmer.
However, farm working expenses and tax payments would also rise, so the extra money would not all be profit.
“There has been a substantial increase in borrowings and there is still some outstanding deferred payments and maintenance to clear before this debt can be reduced.”
Newman said most farmers with Fonterra loans were also likely to put the milk price increase towards repayment.
Venture Taranaki CEO Stuart Trundle said Taranaki’s farming community had had a tough few years, so the rise in the milk price forecast would be boost morale. “It will also lift confidence throughout the region, as businesses become cautiously optimistic about the potential flow-on effects of the final payout.”
He advised farmers to seek independent professional advice about the implications of the extra revenue.
While farmers’ extra spending would have a significant economic impact in Taranaki, the broader factors of global milk demand and supply, would be critical to a sustained recovery, he said.
By: Sue O’dowd
Source: Stuff.co.nz