A Christchurch-based farm accountant has estimated that most dairy farmers will be making a loss this season of more than $1 per kilo of milk solids.
Photo: RNZ / Alexander Robertson
Pita Alexander said the current dairy price collapse was the seventh serious agricultural downturn he had experienced in his farming and accountancy career, and this was one of the worst.
He calculates that the average dairy farmer would need $5.75 a kilo to cover production and other costs, and Fonterra's latest forecast of between $4.25 and $4.35 in milk payments and dividends this season would leave them well shy of that.
"The true cost of production on farm would be probably be about $5.55, but when you allow the personal drawings, including life insurance, personal allowances, you get up near $90-100,000 in many cases and that's worth about 20 to 25 cents a kg. And you have to allow for that.
"[The 2015/16 season ending in May] will have a loss maybe of $1 or $1.25 per kilo of milk solids.
"The recent Fonterra announcement of [an extra] 50 cents a kg for production between June and December will certainly help, no question. It's interest-free for two years.
"They haven't told us how the repayments are going to work. I think it's only when the price per kilo gets above $6, but that doesn't look like it will apply for a little while"
But Mr Alexander said banks so far were supporting their dairy farmer clients.
"They have decided in the main that the loss for this current season - they will add it either to the overdraft or to the term loan, but the banks are taking a very responsible attitude. I haven't struck any banks at this stage that are being difficult.
"The real key's going to be at 31 May 2016, because at that point if we are looking down the barrel of another loss for the year ending May 2017, we will start to have some difficulty at that point.
"That's still 12 months away, approximately, but it's a bridge we're going to have to cross. You would hope by that stage that the dairy scene might have improved, and there might be more demand."
He said it was noticeable that people who were forecasting a turnaround in dairy prices this season were no longer predicting when prices will bottom out.