Taieri dairy farmer Matt Kerr contemplates a further drop
in dairy prices. Photo by Peter McIntosh
When it comes to being a dairy farmer, Matt Kerr reckons
milking the cows is the easy bit.
Dairying might be seen as the rock star of New Zealand's
economy but there were challenges aplenty for those on the
land, not least the implications of a continued slide in
Prices dropped 8.9% in this week's GlobalDairyTrade auction -
they have fallen 35% since February - and economists have
taken the knife further to their milk price forecasts for the
Implications for the wider economy have also been touted,
including the interest rate and exchange rate outlook.
''It's not looking good,'' Mr Kerr (25), who farms on the
Taieri, said yesterday, as he digested the latest price drop.
Prices have been affected by strong global production, softer
demand and a slowing Chinese economy, along with reports of
Chinese buyers stockpiling dairy products.
While Fonterra has not announced any changes to its opening
milk price forecast of $7 a kg of milk solids for the 2014-15
season, ANZ economists said that figure was now looking very
Current spot prices were more consistent with a sub-$6 milk
price. A $5.75 payout would represent an approximate $4
billion fall in dairy incomes from the record 2013-14 season.
In May, Fonterra reduced its forecast farm-gate milk price
for the 2013-14 season from $8.65 to $8.40, in response to
weak international product prices.
Westpac has also dropped its forecast for the new season to
$6 and cautioned that it remained sensitive to auction
results over the coming weeks, while ASB has downgraded to a
The importance of the dairy industry - the country's biggest
export earner - to provincial New Zealand was highlighted
this week, when analysis showed regional economies earned
about $14.3 billion from dairy farms in 2013-14. Otago
received an estimated $727 million.
Price falls of the magnitude experienced and a stubbornly
high New Zealand dollar represented a ''material change'' to
the risk profile for the economy, and hence the interest rate
and exchange rate outlook, ANZ economists said in a report
The New Zealand dollar could not remain divorced from such
commodity price developments and it was looking vulnerable to
a correction over the coming months, they said.
Last night, TV One reported the price of milk at the checkout
was set to fall.
ASB Bank rural analyst Nathan Penny was quoted as saying more
milk meant more pressure on prices, which pushed them down.
Consumers were likely to save about 20c for a two-litre
bottle of milk, but the lower prices could be shortlived.
Mr Kerr, who has been farming for about seven years,
following in the footsteps of his father who has farmed for
30 years, said the dairy price declines had to stop
''I do think it's going to be OK. There might be a couple of
doom and gloom years ahead of us but the next few years is an
In the meantime, he was concerned with what was happening in
the global scene, particularly in China, while costs for
farmers continued to go up.
Mr Kerry said at least a $6.50 milk price would be ''fine''
and it would probably have to have a ''6 in front of it'' for
farmers to still function. At $6, however, there would be no
room for any upgrades, he said.
A lot of farmers had ''whacked up debt'' - dairy debt in New
Zealand was estimated to be about $32 billion - and they
would be ''starting to spin'', he said.
The payout might drop but the debt was still there and the
''cost of everything'' was still there and did not reduce.
The Kerrs had done a lot of work on their farm, near Berwick,
this year, including building a cowshed and buying more land.
They milk about 800 cows.
A new effluent system, costing about $120,000, had been
installed and ''you don't make any money out of that'', he
There were now challenges around environmental issues and Mr
Kerr was frustrated about what he described as a ''moving
target'' when it came to compliance.
''If it keeps going the way it's going, it'll be like Europe
in 10 years' time. No money in dairy farming [and] all
rules,'' he said.
His family had spent a lot of time and money on planting
trees and fencing waterways.
A channel which ran past the farm was green 20 years ago. Now
it was home to fish and ducks and had ''crystal clear''
Dairy farming was a passion for Mr Kerr - ''I'll be here
forever'' - but he acknowledged it was not particularly easy.