Fonterra dairy farmers may be in for a white Christmas, but it’s going to take more than a good payout to restore confidence in Morrinsville’s rural economy.
The dairy co-op has announced a forecast milk payout range of $9.50-$10.50 per kg of milk solid, raising the midpoint by 50 cents to a record $10.00, meaning more cash in cockies’ pockets.
Fonterra chief executive Miles Hurrell says he’s pleased to announce another lift in the forecast, and the co-op is “committed to providing farmers the highest sustainable milk price”.
Rabobank agricultural analyst Emma Higgins says it’s “fabulous news” for dairy farmers, and the benefits will flow into rural communities as well.
She says the backdrop of a “very uncertain macro situation” means “anything could happen” with international markets in the meantime, but should Fonterra see this through, it will be very beneficial for rural and provincial towns.
The increased forecast midpoint and advanced rate is welcome news for dairy farmers says Federated Farmers dairy industry group chairperson Richard McIntryre.
“You know, I think $10 dollars is a milk price that has always been a bit of a glass ceiling,” says McIntyre.
“Farmer cash flows are going to be boosted straight away, which is fantastic.”
While it is good news, he says it needs to be put in the context of rising inflation.
“In real terms, we’d really need $11 dollars now, given the amount of inflation that there is.”
Morrinsville dairy farmer Brent Houghton says things are looking more positive with the payouts, but it’s not the end of the season yet.
“We don’t have it yet.”
“It’s a record payout, but when you line it up, it’s not.”
Houghton says many farmers have big debts and farms aren’t selling.
“Twenty five percent of farmers are still trying to claw themselves out of the hole from last year,” says Houghton.
Farmers have been deferring repairs and maintenance, cutting costs where possible and putting off buying new equipment and machinery.
McIntyre says the forecast payout will help take pressure off overdrafts, and will see farmers start to plan for repairs and maintenance work, which is a “positive step” in improving rural business confidence.
But it may take some time for the benefits of the payouts to “tricke down” to the rural service business economy, says McIntyre.
Power Farming executive director Brett Maber says “sentiment has turned a corner” in the sector since Fieldays and more recently, the Federated Farmers restoring farmer confidence tour, but it’s still “really, really tough out there”.
He says the flow-on effects aren’t being felt in the tractor sales business yet.
“Things aren’t flying off the shelf.”
Although the forecast payout is “fantastic news” for rural businesses and the country, the rural economy is still at the bottom of an up cycle, he says.
Honda’s Morrinsville branch manager Cam King says things have been improving over the last few months and business is starting to pick-up.
King says bike sales have been steady, but farmers will be waiting for interest rates to drop again in the new year.
He says the bike sales business tends to be an “ebb and flow thing”, but farmers and businesses are feeling more optimistic overall.
Lisa Skiffington has run Morrinsville irrigation equipment supply business Pump and Pipeline Limited with her husband Paul for 24 years.
She’s seen up and downs in those years, and right now the rural sector is “definitely struggling”.
“No-one’s spending money.”
“Every business is flat, it’s just the economy.”
Skiffington says farmers’ running costs have been outstripping their income, and business owners are the same.
“If your money’s not coming in you’re starting to look at your costs.”
“People are repairing their stuff instead of buying, and interest rates aren’t coming back any time soon.”
Their business supplies irrigation systems to farmers, dairy processing companies and kiwifruit growers. She says they’re still busy, but their income is “way down”.
“Our town relies on the farming community.”
“There’s always ups and downs, but they’ll always come back.”
The rural economic downturn has been particularly hard for Morrinsville retailers with tough economic times meaning shoppers might make the 30 minute trip to Hamilton for cheaper prices.
Morrinsville chamber of commerce chairman Nigel McWilliam says things are still “very tough” in the retail sector.
McWilliam says the streets are very quiet, and there’s now several gaps on the main street where retail businesses have gone under.
“We’re not seeing those big decisions. We’re not seeing the pre-orders, not even seeing the servicing of vehicles coming through.”
“People are very cautious, and are still wondering whether this is a short-term gig.”
McWilliam says $10 was the panacea in the old days, but the costs are much higher now than back then.
“I think we did some numbers and it was about $11.50 before we get the best payout on record sort of thing. So we actually need the $10 rather than celebrating it.”
McWilliam says interest rate deductions aren’t flowing through as quickly as they’d like, and further deductions are needed before Christmas to give people more confidence.
“The streets are generally empty right now as I look out my window. So the confidence isn’t quite there yet.”
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