Markets Processing

Time for Belts to Tighten

GLOBAL - Dairy farmers around the world are currently in a belt-tightening phase as world dairy prices remain low.

29 September 2014

2 minute read

Even with some relief from cereals and feed prices the picture is still grim, the National Farmers Union is telling English producers.

Within Europe, Russia’s import ban has shaken cheese and butter markets, while elsewhere processors blame good production conditions and a satisfied China on the supply and demand picture.

Post Russian-ban, European market intervention has removed 100,000 tonnes of cheese in private storage aid (PSA), over 80 per cent being Italian.

The aid was confirmed after lobbying from producer groups such as the European Dairy Association and Copa-Cogeca which warned of the consequences of oversupply.

Price cuts, some as high as three pence per litre in the UK, have been linked to lower price calls on the world market.

Last week, the Global Dairy Trade ended a five week slide when it closed unchanged, with Dairy Australia commenting, “no news was good news”.

Milk powders inched higher, although a 6.9 per cent drop in Butter Milk Powder was registered.

In New Zealand, Fonterra reacted to volatility by reviewing the farmgate milk price, shaving 70 cents off the 2014/15 season value.

Fonterra boss Theo Spierings said: “The forecast Farmgate Milk Price is reduced based on current estimates of future pricing.

“There remains significant volatility in international dairy commodity prices and given this, this forecast is our best judgment at this time.”

Most farmers will survive the year unscathed, but around 25 per cent have tough times ahead.

This is providing there is no drought this year, research and advisory group DairyNZ told farmers this week.

Their message was that the most debt-burdened farms in New Zealand could struggle to meet farm costs and pay interest.

"We expect farmers to make a determined effort to control farm working expenses this season, with an average budgeted reduction in farm working expenses of around 40 cents per kg milk solids to $4 per kg MS,” said David McCall, general manager.

All told, Fonterra’s price cut mean a NZ$1 billion loss across its farmers, he added.

He added that profit making farms on $5 farmgate prices should be lessons to others.

Businesses achieve this through pasture performance and efficiency underpinning stable production.

This traditional low-cost farming approach, will continue to succeed in New Zealand, he added.

"We want all farmers to build strength into their businesses - rather than just hold the line in the hope we will be rescued by a milk price lift next season."