Battered by storms, and soaring costs, New Zealand dairy farmers have countered by extracting higher production.
As one commentator put it, end-of-season production “has been through the roof” . Westpac senior agri economist Nathan Penny notes in a report in the NZ Herald that we are probably looking at two record months to end the season, with April hitting a record high for an April month—up 7% on a year ago.
“It seems like that continued into May”.
Any extra inflow of cash from that will be important to producers to offset rising costs, particularly as the big co-op Fonterra has pitched its forecast payout for the new season beginning this month in a $7.25-$8.75kg/MS range, with a$8 mid-point.
DairyNZ CEO Tim Mackie has pointed out that farmers have seen an increase in their costs in recent years, with total expenses in 2020-21 at $8.13/kg, and forecast to be around $9/kg in the 2022-23 season.
“This has largely been driven by increases in feed, up 21%, fertiliser, up 28%, and interest costs, up 39%”.
Fonterra Shareholders Council chairman John Stevenson says the financial situation on farms is tight, but the co-op’s advance rate schedule will be welcome. (Fonterra when it announced the new season’s forecast said it had designed a new advance rate guideline to get cash to them earlier in the season, in recognition of the financial pressure many are under).
The break-even point for farmers, says Stevenson, will depend on their costs, and how much debt they have.
“Anything around $8/kg is pretty close to break-even. I’m assuming that with this opening milk price, farmers will look really hard at their budgets and tighter their belts going into the new season”.
As Point of Order sees it, the issue for the dairy industry is whether the Chinese market becomes more active, following the prolonged Covid lockdown. Some market observers believe the signs are propitious;others are more cautious.
Meanwhile Fonterra’s farmer-shareholders will be counting on the substantial dividends the co-op has signalled as a result of its buoyant trading in the season just past.