Fed Farmers warns dairy farmers face 'austerity' this season

New Zealand dairy farmers are facing an "austere" 2014/15 season, says the national farming lobby, Federated Farmers, in response to the further slump in international dairy prices overnight.

Prices for dairy commodities in the fortnightly GlobalDairyTrade auction fell 7.5 percent on average, meaning prices have more than halved since the beginning of the year, with global rural lender Rabobank warning yesterday of a "protracted bear market" emerging for dairy products, which will only start to lift next year when high Chinese inventories start running down.

Also important will be any return by Russia to dairy imports from the European Union, following a ban in retaliation for EU sanctions on Russia caused by its incursions in Ukraine.

"There's no way to dress this up as anything but a kick in the guts," said Andrew Hoggard, Federated Farmers Dairy chairman.

"This is the auction result that brings the chickens roosting in the Eastern Ukraine home to us on-farm. Dislocated European milk has definitely put a sinking lid on global dairy prices."

He expected tumbling prices would see a slowing in the additional volumes of dairy products being produced in Europe and North America, where farmers ramped up volumes in response to record high dairy prices in the previous season.

The pessimistic assessments are confirmed also in today's ANZ Commodity Price Index release, which dropped for the seventh month in a row, falling 1.3 percent in September, led by a 14 percent decline in the value of skim milk powder, although when adjusted for the falling value of the kiwi dollar, the index rose by 1.6 percent in September, the first such rise since February.

Rabobank director of dairy research for New Zealand and Asia, Hayley Moynihan, said " while a bottom appears to have been reached for New Zealand and Australian export prices, market rebalancing will be a slow process and price recovery looks some way off."

Trading banks are already further cutting their expectations for the 2014/15 payout from Fonterra Co-operative Group [NZX: FCG], which the dairy giant cut late last month to $5.30 per kilogram of milk solids, with ANZ and Westpac now forecasting further cuts, to $4.85 and $4.80 per kg/MS respectively, and ASB watching developments with a likelihood of a cut. Fonterra's previous forecast had been $6 per kg/MS.

Federated Farmers' Hoggard advised farmers to "watch costs but to keep your bank, farm consultant, accountant and family fully in the loop."

"Take a no surprises approach to get through this."

(BusinessDesk)