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After a harsh drought and massive feed costs, dairy farmers needed good news and Fonterra may have just delivered it.
"The forecast farmgate milk price of $7 per kilogram of milksolids (kg/MS) for 2013/14 is going to get a lot of attention," says Willy Leferink, Federated Farmers dairy chairperson.
"Boy oh boy did we need some morale raising good news. In plain-English, it means that farmers could get about 0.58 cents per litre for milk they will produce between June and May 2014.
"While a $7kg/MS milkprice forecast sounds amazing, the public deserve to know this is forecast revenue and revenue is not profit. To get to profit, you need to take off the farm's working expenses, tax obligations and pay back the bank manager; a big expense being right there.
"Farmers also know this is a long-range forecast and it is subject to change. What farmers will be relieved to see is certainty around this season's forecast of $5.80kg/MS for milk and the dividend of 32 cents per share.
"Dairy farms are the most capital intensive of the pastoral industries and the Ministry for Primary Industries estimated farm working expenses for this season are about $4kg/MS. That is before a farmer repays the bank or turns a cent in profit and was well before the drought hit.
"One word best describes the back end of the current 2012/13 season and it is ugly. February's production was less than last year, March's milk production slid back to 2010 levels while April's has tumbled off a cliff.
"I know farmers running the average herd size who are paying something like $1,000 a day in supplemental feed costs. Some will make losses of hundreds of thousands this season.
"If you want to know how ugly drought has been on pastoral agriculture, then the 2013 Budget has put its cost at 0.7% of Gross Domestic Product; $1.57 billion. Droughts in recent years have now cost 'NZ Inc' over $3.7 billion.
"The fact we can farm through to the promising greenfields of 2013/14 is only because the banks saved our bacon. If we can get $7kg/MS next season, then it may even out this ugly season but there is a lot of water to go under the bridge first.
"The drought's breaking only meant the hard yards of recovery could begin. We've got pasture to recover, herds to rebuild and debt to repay, so the higher advance is a godsend.
"Yet a $7kg/MS forecast milkprice assumes the weather will play ball in a benign local and international climate devoid of shocks or conflict.
"To underpin future payments like this we need water storage. No one in town would accept waiting for rain in order to boil a kettle but this is how our farm system has largely rolled.
"So it has been a hell of a season and despite it all, Fonterra farmers are helping to put milk into every primary school which wants it. That speaks volumes," Leferink concluded.
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