Dairy farmers in loss mode till 2019 at least

New forecasts for the ailing dairy sector are claiming farmers may not reach the break-even payout point until 2019 - "at the earliest''.

Fonterra's current forecast of $4.25 per kg of milk solids for next season leaves the majority of its 10,500 farmers facing a cashflow negative season, which would be the third season for some, and wiping billions of dollars off trade receipts.

A global glut of milk, declining Chinese demand and sanctions against exporting to Russia are keeping prices depressed, with the fortnightly GlobalDairyTrade auction last week uninspiringly flat.

Labour's Finance spokesman Grant Robertson said the latest forecast by the Organisation for Economic Co-operation and Development's (OECD) showed New Zealand dairy farmers would not reach a break-even payout before 2019 at the earliest.

He also claimed they would not reach the dairy price factored into this year's Budget until after 2025.

"The calculations made by the Government in this year's Budget are based on OECD forecasts, including the price for whole milk powder returning to $US3400 ($NZ4868) a metric tonne in 2018,'' Mr Robertson said in a recent statement.

The revised OECD forecast showed the price in 2018 will be $US2617 a metric tonne, almost $US800 away from the Budget forecast.

Mr Robertson said it also showed that through to the end of the forecast period in 2025, the price per tonne would not reach National's claimed figure of $US3400.

"Many people thought this [$US3400] was wildly optimistic at the time and the OECD's revised forecasts for 2016 confirm that to be the case,'' Mr Robertson said.

In the subsection of the OECD report, "dairy and dairy product'', it said China's role as a key importer of many traded dairy products was the "key uncertainty'' for future developments of the world dairy markets.

"China's domestic milk production has continued to increase, along with investments in processing capabilities.''

The report said if China was to resume imports to the same level as 2014, it would have a significant impact on markets, but it could become further self-sufficient, supplying much of its demand for dairy products domestically.

The report noted the current low global prices reduced the attractiveness for China to invest in more dairy processing.

Mr Robertson said for New Zealand's dairy farmers to break even they need a whole milk powder price of at least $US2650 ($NZ3795) a metric tonne, at current exchange rates, which would be an increase of 30% from the present position.

"The OECD's forecasts push that break-even point back until 2019 at the earliest,'' he said.

Dairy farm debt has risen to almost $40billion, and represents 10% of all the banks' loan books.

"In this scenario farmers will not be in a position to reduce debt any time soon.

"In fact they will require significantly more borrowing for a sustained period, which banks may well have concerns about,'' Mr Robertson said.

He accused National of having "sat on the sidelines'', saying a Labour government would diversify the economy, produce higher value products and have improved land use decision-making.

simon.hartley@odt.co.nz

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