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:
- 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!
- 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.
- Sell other assets if you can
Maybe not Murray Goulburn shares…
- 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.
- A combination of all of the above
The best strategy is often multi-pronged.
- 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.
- 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.