Decisions, decisions, decisions

CowsDairyTrack

It’s happened. Fonterra Australia, the factory that processes our milk announced yesterday that it, too, would pay farmers less.

Already five days into May, Fonterra announced the price for May and June’s milk will be $1.91 kgMS, which equates to about 14 cents per litre. Milk costs about 42 cents a litre to produce. At least it does normally, when you haven’t been in a drought for a year or so.

So what does a dairy farmer do? Here are our choices:

  1. Send the cows on holiday for two months
    This option has immediate appeal. We would let the cows due to calve later this year go dry early. It’s much cheaper to feed a cow who’s not milking but because we’re in drought, we still need to pay for feed to keep them going. We still also need income to pay the mortgage!
  2. Sell cows
    We’ve already sold a lot of cows in the face of the drought but any cow that is not in calf and is not producing a lot of milk will have to be sold immediately. Why not sell the lot? Because that would make it very difficult to pay the mortgage for long. It takes years to rebuild a herd.
  3. Sell other assets if you can
    Maybe not Murray Goulburn shares…
  4. Feed the cows less and cut other costs
    We are currently feeding the milkers as much grain as we dare because of the drought. It’s ridiculously expensive. Maybe we can turn the dial down a little bit. They will produce less milk but they may not lose weight if we are careful.
    We’ve already cut a lot of other costs to find our way through the drought but I will be doing all the little things we can.
  5. A combination of all of the above
    The best strategy is often multi-pronged.
  6. Take on more debt
    Recognising that survival on 14 cents per litre is not feasible, Fonterra has offered farmers loans to be paid back (with interest, mind you) over the next few years. Or you can of course visit your friendly bank manager.
  7. Sell the farm
    This will be the final straw for some but it’s likely to take a year or two to sell a farm so you’d still have had to suffer the losses.

In the last post, I wrote that we’d been advised not to lose our vision for the farm. We’re still on course but the perfect storm has well and truly hit with more force than I ever imagined.

 

 

49 thoughts on “Decisions, decisions, decisions

  1. I got a little confused with the $1.91 , 14 cents and 42 to produce.
    Point of interest for those trying to get city folk onboard, need to talk in terms such as :
    Last week we got 44 cpl now we are getting 30 cpl and it cost us 46 cpl
    Just try to help
    Ta

    • Thanks for the feedback, Steve. I have made a little edit, which I hope helps make it easier to understand but I need to keep the kgMS price in there for the sake of accuracy.

  2. Hang in there. Hopefully a weak La Nina will turn up soon. Are you still running a seasonal herd?

  3. Reminds me of 1982 in Mallee – 104 mm of rain, had to shoot and bury 650 ewes, some didn’t even bother harvesting though I did and delivered $12,000 in grain from a 4500 acre property. The other option for some people is for one parent to temporarily move away and get work – there is generally none available locally. Of course the other parent then has a very heavy workload.
    Thinking of you all – reckon you as a family have more chance of surviving than some others.

  4. Marian
    Perhaps you need to explain you’re not paid for the water in milk, only the solids including fat and protein. As water that makes up 92.5% of the total volume, $1.91 per kg of milk solids x 7.5% solids = 14 cents / litre

  5. I can’t begin to understand how gutted you must be feeling right now, and the big decisions that you are going to have to make. Fonterra should hang in their head in shame for paying a paltry 14c/lt, and openly admitting that they are only doing it because they can, now that MG has lowered their price. Surely they can’t just backdate payments like this, and leave you with a debt. What other industry can you do that? Imagine the outcry if workers were treated like that. I really feel for you and the whole dairy industry.

  6. Feeling your pain, we made the hard decision to close our dairy 2 years ago, drought, 5 floods in 3 years, PRICE!! As farm debit and input prices increased our income decreased and every step was in the wrong direction, we loved what we did but sanity had to take over. We were lucky enough to sell off our lovely herd and am still following with our lovely in calf heifers, 20 years of breeding and dedication made for some lovely girls and am happy to know they have gone on to do their jobs, but every truck load tears at the heart strings. When will this country realize we need our farmers and to keep them they need to be paid fairly for their produce, one day when there is no milk for their latte’s the penny will drop. Good luck!!

      • We miss our cows and the milking but we have moved on and now produce fodder mainly lucerne hay. Hubby always loved growing his pastures so this keeps us on the land and doing what we love, I kept myself 3 lovely girls so I still get my milking fix with my house cows so I still enjoy the luxury of fresh milk, cream, homemade butter, cheese, yogurt and ice-cream. Told hubby about your price and he was horrified didn’t believe me until he read this. Keep up the good work and wishing you all the best

        • Congratulations Jacqui on finding your way through it and thank you for telling us about it. It’s always good to remember that there is life after dairying.

  7. You are probably lucky in one regard. Sounds like you Spring calve, so cows are at tail end of lactation. Poor souls like us Autumn calve and are being slugged when we are trying to reach our peak.

  8. Good luck, Marian. As much as these posts about the dairy industry depress me at times, they are very educational. From my mole’s eye view, it would seem your consumers themselves need more education as to what goes into their lattes and cereal bowls, and what it actually costs to produce it. Good quality food is worth more than the mass consumption of needless “stuff” the advertisers tell us we need to spend our money on. Keep shedding light on the subject.

    • Hi Lavinia,
      Thanks for reading the bad news posts. I think it’s important to shed light on the situation so that people can come to grips with what’s happening and the implications.

    • As I now live in the ‘burbs’ I am one of these people you refer to. However, as ‘consumers’ we are hearing your problems but don’t know what we can do to help. I realise the price of milk is ridiculously low in the supermarkets and would gladly pay a bit more if I thought it would help. We are not able to buy ‘farmgate’ due to health restrictions but does it help if we buy certain brands, more milk, other dairy products? Even a donation to help you through drought maybe? We don’t want to end up buying reconstituted Chinese powdered milk!

      • Wow, thanks Angela. The best support you can offer is to buy Australian dairy foods and avoid the ultra-cheap unbranded stuff. Thank you so much for thinking of us.

  9. Sorry to hear about your quandary. I think that drying off cows early combined with selling open cows would be good for a start. When the price paid rises, you will have cows coming online after they calve, helping you take advantage of the higher prices.

    It seems to me that withholding some grain to save cost of production will cause condition loss in the short term until milk production decreases, especially for your highest producing cows. This seems like a tricky thing for a high producing cow that has just freshened, the risk of hypocalcemia seems higher not to mention ketoacidosis which has the knock on effect of raising risk of mastitis. Good quality forage that has the right protein and mineral profile, if available, could be a substitute for some of the grain and provide ready energy.

    I’m not in touch with production in Australia, but understand that you may be on a seasonal system, and not freshening too many cows at this point.

    It’s important to continue brining in cash during this time so having milk to sell is the only way to continue to operate. It’s the conundrum of low milk prices. Cutting the cost of producing each kg of milk is really important.

    • Thank you for reading the post, bongoangola. You sound like someone who’s very well educated in this field! We’re a good way into drying off the herd and have just the first few calved now. We still don’t have a lot of grass so, yes, it’s going to be tricky. The cows are in great condition and we’re going to reduce the grain by about 12%. Nothing that will compromise the cows’ health.

  10. Thank you for writing your blogs. I am a fellow dairy farmer and have been a ‘silent’ reader of your posts for some time. Finding reassurance that I am not alone in the ‘roller coaster ride’ that is dairy farming. In particular thanks for writing the last 2 posts, the latter a gut wrenching article (even though you have written it so well, leaving the emotion aside). You provide an articulate voice representing dairy farmers. In the short term I hope you get rain and not a flood 🙂
    Thank you Marian.

  11. Thanks Lisa. That comment means a lot to me. Good luck with your own season and decisions. So many people are so badly affected and we just all have to stick together.

    I’ve been feeling pretty blue recently and it’s been talking with some incredibly kind farmers and advisors that has helped me get through. There are truly lovely people all around us.

  12. I spoke to friends this morning with a dairy farm in Tasmania. After one of the driest summers on records and nearly being burnt out by bush fires they are faced by this. They are in a complete state of shock and disbelief at what has been done to them -via text message – to add insult to injury. As winter milkers they are hit hardest. After 40 years in the industry and 15 years for their daughter working alongside them they think they will have to get out.
    How in God’s name is this fair or right. One of the values on Fonterra’s own web page is ‘Do What is Right’.
    Where the hell is our Government and why will they never stand up for, and support, our Aussie Farmers.
    I just feel so helpless and hearing the heartbreak in my friend’s voice this morning (she is one of the strongest women I know) just tore me apart.
    This is so reminiscent of the Live Export Ban of 2011 and it is going to have the same effects -destroying some people, creating a glut on the market of cattle and land, causing roll on effects throughout entire communities and leaving people bitter and angry.
    How many farmers will decide this is the straw that broke the camel’s back? Way too many I fear.
    I send my support to dairy farmers right across Australia int this dreadful time.

    • Best help non-farmers could give is to buy branded milk. Reality is though, many Aussies doing it tough and discounted staples like $1 milk are hard to pass up. I think this situation is a perfect PR opportunity for supermarkets. Up the price of their house brand milk and negotiate with suppliers to ensure it is passed on to farmgate. Even if it was 20c a litre, it would help. Most households would gladly pay a little more. Where are the big conglomerates when times like this hit. Watching us go broke and raking in huge profits. That’s where!

      • That would be fantastic except Instead the supermarkets are contacting processors to ask for cheaper prices to make themselves more money.

  13. I’ve only recently learned of your blog from my daughter who’s been following you for a while. As a consumer, I am absolutely furious that a company can cut prices to their suppliers without any consideration for the long term effects on the industry. In what industry other than agriculture is the price so blatantly dictated? I live in a large regional centre that is quite dependent upon mining. However, there are 6 dairy farms remaining in the area. If just one of those were to fold, all 6 would go as nobody would be willing to collect the milk from just 5 farms. I am so frustrated that consumers, particularly in the city, can’t see that without our support of Australian farmers, we’ll eventually end up relying completely on imported food. Where will that leave our country? I am just about to hit 50 years of age and am rapidly becoming an ‘annoying’ person. I can’t do much myself, other than continue to purchase Australian (and brand name at that), but I have started writing to politicians. This is yet another cause for a letter from me. I don’t know how much good it will do, but I’ll keep writing and one day a politician with guts will stand up and say ‘enough is enough’! We need our farmers! They’re worth their work! They deserve to be paid a fair and reasonable amount! So, to all the farmers out there reading this, there are people in the general population who care and are trying to make a difference through wise purchasing and educating anyone who will listen.

  14. Hey I’m just wondering how the pay back scheme works like if you take the $1.91 for May/June weren’t they back dating it for all of this financial year?

    • Hi Brad,
      It is bloody confusing. The $5.00 figure is irrelevant, really. It just means that with the $5.60 average for the first 10 months of the year and the $1.91 for the last two months, it all averages out at $5.00. If you don’t take out a loan for the last two months, you owe Fonterra nothing but the milk price will be lower next year by 2 cents for all suppliers.

  15. Love your blog Marian. I’m a city slicker with dairy farmer family roots but am also intrigued by the MG debacle, so have been reading extensively the last couple of days. All your posts are thoughtful, considered and sensitive to all the humans that make up the industry. Thanks for the informative blog, and best of luck with your farm. By the way you write extremely well!
    Pete

  16. I take my hat off to dairy farmers and all farmers for that fact. You all work very long hard hours to achieve what seems like very little but for the fact that you love what you do. It is no time for all Australians to stand up and get our politicians to take notice of what is going on grow a pair and try to use their influence to rectify this issue. it is also time for all Australians to support our farmers before they become extinct and we pay exorbitant prices for the food that we will have to import from overseas. appreciate your blog milkmaidmarian and all the best to you.

  17. Sounds like you are doing something wrong. If you go to the store and tell them you will only pay 69 cents for the cornflakes that are priced at 3.68 they will tell you to get lost. If you farmers had the brains and guts you would set the price they have to pay.

    • Mike Yeager, all farmers are price takers, not price setters. Farmers have plenty of guts and brains. Don’t be so damned insulting.

    • Mike that is hilarious. Please understand an industry before commenting. You are surrounded by angry price takers here… pull out pull out…back out reeeeal slow with your hands in the air.
      No producers done anything wrong here, other than not foreseen that the directional strategy would under deliver which impacted on well, everything.

      Farmers are supplying raw materials so by its nature is the starting point and therefore they shoulder a significant portion of risk.

      For starters you’ve gone straight to the store…back the front, you’ve missed subtracting out of that 3.68 value added, final product, the mark up, the cost of processing, the transport, and finally right at the bottom the farmgate (who knows maybe the 69c you refer to, which mind you is closer to a Certified Organic price per litre in the autumn).

      So if we take the current example… in order for MG to retain (or cling onto) market share, to stay as best on growth forecasts and ensure they remain competitive they strip costs out of areas that impact the least on its structure (in accordance with the contract they signed)
      The farmer will continue to supply milk, they have to, the girls just keep producing so they have to sell it (Short of drying off and going on leave….another concept that is foreign to most dairy farmers) and if they are contracted to do so to MG. they need to supply MG… if for arguments sake MG walked up to a farmer in a good time (AKA no regulatory adjustments from China, nor an impending conventional milk glut in Europe effectively dropping the price of dairy commodities on the global market and a rising Australian Dollar which impacts on Gross export prices and therefore quantities consumed, if that’s something else your not sure about) and offered you a reasonable price in comparison to their competitors with a good reputation and solid growth why wouldn’t a business look at it. No one expected the big MG to take a hit like it did and so everyone hurts with it.

      the same incidence may happen with any supplier of raw materials, they are all price takers in any industry, we are at the mercy of the markets and those that control it. You sign contracts based upon the best information at hand, there is always an element of risk associated with it but most of the time with a company of this size its been a safe bet.
      that’s why there is so much disbelief.

      There could be an argument for diversification and many do, but its an input intensive operation and the farmers costs keep rolling in irregardless if the final product goes ahead or is shelved.

      What you are referring to is essentially (I believe) how organisations like MG started and others like it did as well. a group of farmers sitting down saying we aren’t happy with these arrangement lets pool our own and start our own gig…become price makers.

      I’d love to be there it if an individual producer walked up to MG and said hey in order to take my milk which I need to sell, your going to pay me an absolute bucket load they would thank them politely close the door and wet themselves laughing its all in relation to the price the consumer is willing to pay at the other end. not necessarily the other way round.

      Of course anyone can do this, the fact of the matter is that that milk (a perishable product) needs to go somewhere, daily or every second day otherwise the farmer makes no money so yes they are I guess over a barrel or a milk vat so to speak in regards to what price they receive as per tied up in their contract.
      So if MG says sorry there’s been a downgrade in the forecast we stuffed up and cant afford to pay you 5.60 we are going to pay you closer to 5.00…. ouch
      it hurts and the farmers all sit down together and figure out how to keep their head above water particularly if they are autumn calving which if you not aware brings on a milk supply spike. increase in quantity when the prices are traditionally a little better because you don’t have a spring flush to help you… all you need is a drought ie Victoria or fires and a drought ie Tasmania and this then increases your costs for feed thus driving your revenue further down.
      I could keep going but I hope this has shed a ‘little’ light on the situation for you.

      And please back the people who produce for you.. buy branded otherwise you may well be the one in ten years time when the supermarket brands have weeded out the competition, walking into the supermarkets saying hey I’m not going to pay you $5.00 a litre I’m only going to give you $3.00 they will tell you to get lost as the consumer didn’t have the brains nor the guts to spend a little more now to retain a competitive and affordable industry.

    • Dont bother commenting if you can’t say something nice. My husband ( dairyfarmer )got 99.3% in his HSC so I would say he has some brains and I am certainly not gutless. Maybe you should try your hand at it yourself and change history for all of us.

  18. CORPORATES MILK THE FARMERS
    No one wants to see farmers go broke and not be able to feed their families. A savage enough cut in milk prices could do just that to farms whose economies depend on the sale of milk. A forward thinking government, with an awareness of the needs of the times – some European countries are leading the way – and with the nouse to keep up with the science, would show leadership in moving away from animal product farming and help transition dairy farms to crop farms.

    Good to bear in mind as well, dairy farms are found in fertile areas with good rainfall. The same conditions are eminently suited to crop farms; so crop farmers are found in the same areas where they have chosen cropping anyway. An example is the Southern Tablelands where the Robertson area is famous for potatoes. Many farmers grow only or mainly potatoes augmented by crops such as cabbages, corn, peas, swede turnips and more.They may carry some cattle and sheep as well to graze the uncropped land.

    So, many farmers do not opt for the twice a day (or more) milking routine that sees farmers alarm’s going off at 3 in the morning.
    Change is inevitable and absolutely desirable. But sudden change can be brutal when the many smaller changes supporting larger change cannot be implemented overnight. The first cab off the rank is a willingness and a desire to change and this is preceded by education which is where the government could show leadership. Inevitably, changes like markets and demand will not always cooperatively be in sync so some difficult change over periods are likely.

  19. Marian et al. Perhaps you need to also explain the industry facts. As far as I’m aware Australia’s milk production is only around 1.5% of total worldwide production. Around 30% of our milk production is exported – and that is only around 6% of total milk exports. So Australia has limited impact on the world prices for milk/ milk products – we are price takers in the export market. That since 1980 the number of Australian dairy farms have dropped from 22000 to 6000, with about the same number of dairy cows and twice the production – a more than 7 times increase in milk production per farm. And to do that dairy farmers have had to invest a lot of capital in buildings, equipment, cows and land, so many are paying off large debts… In summary dairy farmers have managed huge change including a 7 times increase in production per farm. They should be applauded.
    But even for this outstanding group a sudden income reduction of over 70% is a huge impost.

Leave a Reply