Last Friday, Fonterra reduced its milk price forecast from $4.70 to $4.50 per kg MS.
This price forecast was backed up by the AgriHQ Seasonal Farmgate Milk Price fall of 1c per kg of milksolids to $4.50 and a 3.5% fall in the GlobalDairyTrade price index last night.
Last week, Fonterra chairman John Wilson explained that it is crucial for farmers to be kept updated so they can manage their tight cash-flows.
“This reduction will impact cash flows for our farmers, who will need to continue exercising caution with on-farm budgets. We will continue to keep our farmers updated as the season progresses,” said John.
Bayleys Canterbury Director and country specialist Bill Whalan says that Canterbury farmers have been prepared for this price drop.
“The reduction in the payout forecast throughout the season has been progressive so the market has adjusted in smaller increments. This has been through control of expenses in the budget and production maintenance using lower cost inputs,” he says.
“The budgets for the coming season will be very, very tight with most farms in Canterbury forecasting break even or losses. However there is a significant difference between this price correction and the last in 2009 in that debt levels are now significantly lower and interest rates are at an all time low.”
Bill explains, “The greatest impact will be on the highly developed, high input farms of the Canterbury plains which are set up for maximum per hectare production; the most progressive farmers!”
John Wilson is hopeful for the future stating that while GDT prices have fallen significantly since February, he still has confidence in the long-term fundamentals of international dairy demand once the market rebalances.
Sources: Fonterra Co-operative Group Limited, AgriHQ, GlobalDairyTrade