Canterbury Farming, September 2014

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29,200 copies distributed monthly – to every rural mailbox in Canterbury and the West Coast.

INSIDE Page 3

Rural companies top performers Page 8

Farming legacy contributes to future

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Getting a buzz out of bees

CONTACT US Canterbury Farming 03 347 2314

September 2014

Proceed with caution becoming the dairy mantra By Kent Caddick

Canterbury and West Coast dairy farmers are being urged to be cautious as dairy prices continue to tumble. Fonterra has been the latest of the dairy producers to slash its farm gate price for the 201415 season after reporting a 75% drop in profit. The dairy giant’s new forecast is $5.30 per kgMS which has highlighted an exceptional 2013-14 season when its farmers were receiving a high of $8.40. Among the factors for the downgrade in forecast the dairy companies cite a strong New Zealand dollar, strong milk production globally and international developments including the softening of the European market with Russia banning the importation of dairy products. In the August Global Dairy Trade auction the GDT Price Index fall a further 8.4 percent. According to BERL Economics the weighted average winning price has plummeted to 3,025 USD/MT (US dollars per megaton) from its record high of 5,042 USD/MT set in February, a drop of 40%. BERL researcher Marsur Alam Khan said while not totally unexpected, the rapidity of this decline is both concerning for dairy farmers and the consequential impacts on the nation’s economy. “The most concerning aspect of the rapid fall in global dairy prices is the potential negative

impact it may have on export receipts given that dairy exports accounted for almost a third of all export receipts in June 2014.” Industry analysts have estimated the recent falls in dairy prices will cost the New Zealand economy around $5 billion in lost revenue. However, Mr Khan said the news wasn’t all bad for exporters as demand for dairy products, especially powdered milk, continues to grow rapidly in China and other emerging Asian markets. That view has given the dairy companies confidence to continue with their investment programmes but with the falling forecast payouts the view down on the farm is one of caution rather than confidence. Carew dairy farmer Jeff Gould said there was an upside to the fall in payouts to farmers. “We as dairy farmers have been doing reasonably well over the last year and there is the chance of a an insidious creep as people get slack in regard to their running costs and debt loading when profits are good. “It is important farmers keep a close eye on their costs and falling prices are a warning to them they can’t allow things to get away from them. “While things are getting tight at the

photo courtesy of Deb Evans

moment it is not serious and good operators are still doing okay. The crucial time will come in around 12 months and if there is not a stabilisation of prices by then there could be some difficulties for farmers.” Industry analyst and Hokitika dairy farmer Andy Thompson said at the moment the only good news is that the lower forecast predictions have been made early in the season. “This gives dairy farmers the opportunity to reassess their budgets and ensure they are managing their debt. “If it comes later in the season dairy

farmers are committed to a level of debt and therefore a drop in payouts could severely affect their ability to service their debt.” He said further reductions could depend on how the Kiwi dollar performs. “But I am quietly confident that we are reaching the bottom and we are still extremely competitive in the international markets due to our quality.” Mr Thompson said the flow on effect from dropping prices will also hit others in the community hard with dairy farmers putting off buying

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new equipment and vehicles in favour of repairing existing equipment. “Contractors will also take a dip as farmers take on more work themselves but dairy farmers need to be wary of deferring maintenance as that could lead to problems down the track.” He said it is important dairy farmers have an open and honest discussion with their bank manager and accountants about the dip in forecast prices. “It is also worth looking at utilising a consultant to identifying low producing cows and getting rid of them early.”


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