“They’ll take it in their stride,” he said.
“If there’s room in the budget they will want to see debt repayment.”
Good relationships with dairy farming clients would ensure that if there was a repeat of drought in Waikato this summer bankers would look at a drop back to interest-only repayments.
Lewis said it was hard for farmers to reduce working expenses as they still had to feed their cows, pay staff and contractors, and fix broken farm machinery. But hard decisions would be made about whether a new milk pump was bought or an old one repaired in order to cut capital spending.
He said farmers were optimistic that the milk oversupply on world markets might have been soaked up by the new year and the GlobalDairyTrade auction would correct itself and start trending up.
A drop of 10c in the New Zealand dollar against the US would be welcomed, which could happen after the election when much of the money for the Christchurch rebuild had come into the country.
“It would be good if it had a seven in front of it.”
Fonterra Shareholders’ Council chairman Ian Brown said most farmers had already been taking a cautious approach after seeing the recent GlocalDairyTrade price falls.
“But a drop of this scale was not expected and will have a significant effect on all farmers’ cashflows and budgets,” he said.
Volatility was a constant in the dairy industry and farmers should remember it was only a forecast.
“However, it provides us a timely reminder of the importance of ongoing cost management in our farming businesses.”
Andrew Hoggard, Federated Farmers Dairy chairman, said while the move downwards wasn’t a surprise for farmers, its size was. Farmers would need to watch costs closely, reforecast farm budgets, and talk to their bank manager, farm consultant, and accountant.
“Given half of what we get paid is spent locally, this will impact the towns but the cities are not immune,” he said.
But he was confident the payout would progressively lift as the season continued with some recovery in prices towards the end of this year and into next.
The drop was a reflection of a near-perfect production season in Australasia, North America, and Europe.
