“It will be another rubbish year,” Federated Farmers Dairy chairman Andrew Hoggard told Auckland Federated Farmers’ conference when asked his view of the payout for the coming season.
“It will be one or two years before prices are at a decent level.
“A happy number, something with a six in front of it, won’t be seen for the next two years.”
On his own farm he was budgeting on a payout from $4 to $5 for the 2016-17 season and for the following season it could be at the high $5 level.
“That’s the feeling I get from commentary and all that I’m reading,” he said.
“This is the bottom.
“After another two years of slog things will be slightly more favourable.”
But influences on international dairy prices could change very quickly.
“The Russian embargo could come off tomorrow or Donald Trump could become United States’ president and kick all the Mexicans out so there would be no one to milk their cows,” he said.
The large cull of dairy stock last year meaning fewer cows were being milked in this country contributed to the 3% drop in milk supply to Fonterra.
But its competitors were up by 2%, showing the large co-op had lost a lot of supply to them.
There had been suggestions it might collect and process only 70% of the national milk supply at the end of the next decade.
“It’s lost the feeling of being a New Zealand co-op,” he said.
“The warm, fuzzy feeling you got in the days of the Dairy Board is well and truly gone.”
Hoggard said a way was needed to show farmer shareholders the actual value of their ownership of Fonterra.
In retrospect the 2007 proposal for A and B shares, which was never put to a farmer vote, might have been a good option.
It would have more accurately represented what had been built up in the past in its legacy companies and since formation, as opposed to value which was now being created.
Without that separation and with large amounts of money tied up in their shares it was tempting for farmers to look to short-term options to release capital.
“There’s not enough thinking forward as to why we had the co-op in the first place.”
Giving his personal opinion, he questioned Fonterra’s farming presence in China, saying he remained sceptical.
“If we can turn a profit, great,” he said.
But European dairy companies were able to gain market access without having similar investments which could call into question the value of NZ’s free-trade agreement with China.
“I don’t think Fonterra will jump out any time soon,” he said.
But he hoped it would look to joint-venture arrangements in the future which would minimise its financial risk.
Asked about the position of its Australian suppliers Hoggard said finding out at the end of the season about their true financial position was “pretty bad”.
The federation would continue to keep pressure on all dairy companies in NZ to make sure they were upfront and honest with farmers.
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