“It’s not the bonanza you would think just because it’s the highest number,” said Andrew Reymer, the dairy chair of Waikato Federated Farmers, who runs a dairy operation at Ohaupo.
In its latest Commodities Weekly newsletter, ASB Bank predicted tighter global supply internationally, coupled with dry domestic conditions impacting production here, would help push prices to the record $9.10/kg, excluding dividend, compared to Fonterra’s earlier forecast of $8.40 to $9.
“The underlying global dairy demand and supply balance should keep prices supported over the remainder of the season,” ASB said.
A payout at $9.10, compared to last season’s $7.54, could add an extra $156,000 excluding dividends to the gross income of an “average” Waikato farm producing around 100,000 kg of milksolids.
“It’s a good price, don’t get me wrong,” said Reymer but suggested that, due to cost increases eroding margins, a new record payout at $9.10 would be relatively poorer than the previous record of $8.40 in 2013.
Because of those cost increases “it needs to be $9.40 to $9.50 to be comparable” with 2013, with increases, including fertiliser, wages, mechanical costs, electricity, fuel and compliance-related matters, said Reymer.
“The margin is basically the same. Everything’s still tight out there.”
He said inputs had gone up “phenomenonally”, adding production costs of $1-$2 per kilogram of milksolids in the past few years.
“Every bill that comes in has gone up.”
One brighter spot was that it was anecdotally predicted that current conditions, dry over December and January, would get wetter earlier in February and March, Reymer said. No one was talking up potential for a big drought this summer in Waikato.
NIWA’s predictions for Waikato from January to March, released earlier this month, indicated an 80 per cent chance of temperature being above normal. “Periods of high pressure will likely cause extended dry spells.”
Rainfall totals, however, had a 40 per cent chance of being normal and a 35 per cent chance of being below normal, NIWA said.
A 26-year-old dairy farmer, Hayden van de Poel, who runs a 132 effective hectare operation with 490 cows at Ngahinapouri, said dryer weather since new year had caught some young farmers off guard.
“We’ve had to put in supplements [to feed stock] earlier at a higher level than what they anticipated,” said van de Poel, the nephew of former Federated Farmers president Jim van de Poel.
The quality of pasture in many parts was poor with grass cover down, which created potential problems for producing enough to take significant advantage of the potential extra payout, he said.
But he felt that, given his access to feed supplements, he wasn’t doing too bad.
“So far it’s business as usual for me.”
But, given cost pressures and production constraints, there may not be the same net profit as in earlier years. He expected things to be much the same as last year in net profit terms.
“There’s certainly been a price increase of a lot of the commodities we need to make things work,” van de Poel said, with fuel and feed being the two main items costing him more.