Dairy farmers across New Zealand could feel the squeeze this season as milk prices fell below the cost of production for some farmers.
Rabobank agriculture analyst Emma Higgins said the expected farmgate milk prices of around $8.20/kg ms sat at, or below, Rabobank’s estimate of the average cost of production.
“A farmgate milk price around these levels means dairy profitability will remain a real challenge for many dairy farmers over the coming season.”
Although, she acknowledged profitability would depend on individual farms systems and management styles.
Mid Canterbury Federated Farmers dairy chairperson Nick Giera said the Fonterra forecast of milk prices around $8/kg ms was “break-even territory” for most Mid Canterbury dairy farmers, especially with higher input costs and higher interest rates.
However, Giera said there was “still a lot of uncertainty” in the milk price forecasts.
Westpac was expecting “a strong milk price” of $9.40 on a possible boost from the cheese market and a recovering market in China, while most other banks were closer to Fonterra’s forecast.
Giera said the effect of prices on Mid Canterbury farmers would come down to how the banks reacted to a low price environment.
But he expected banks would be supportive given the strong milk prices over the past couple of years.
Rabobank’s latest global dairy report said low milk prices and reduced production over winter could add to the stress of a lean autumn for New Zealand’s dairy farmers who had been hit by higher interest costs on top of higher costs for fuel, feed and fertiliser.
Higgins said a silver lining for ‘shared-up’ Fonterra suppliers would be a special 50 cent dividend from asset divestments due to be paid in August.
However, suppliers to other milk processing companies could face a “chilly winter” with minimal or no retro payments coming through over winter and spring, she said.
Rabobank said an improvement on farmgate milk prices would depend on the demand for milk from China over New Zealand’s spring.
The latest Infometrics quarterly report said Ashburton’s dairy payout would be down about $164 million this season, and rising costs throughout the industry would squeeze farmers’ margins.

• By Sharon Davis