8 May 2014

Payout drop a threat to farmers in debt

2:10 pm on 8 May 2014

A farm accountant is backing the Reserve Bank's view that a significant drop in milk payouts would leave some highly indebted dairy farmers in trouble.

Reserve Bank Governor Graeme Wheeler told a Dairy NZ farmers forum on Wednesday that dairy farm debt had almost trebled over the past decade to $32 billion. Just 10 percent of dairy farmers hold about half of that debt.

Mr Wheeler said the elevated debt level would leave some of those farmers highly exposed if the milk payout fell significantly or if land prices fell.

Christchurch farm accountant Pita Alexander said with a payout of about $8.50 most farmers under pressure have room to move.

"They wouldn't like it but they could withstand quite a drop in their milk solids receipts and still have a good viable business," he said.

"But if there was a two dollar per kilogram drop, yes that would immediately cause trouble."

Mr Alexander said he wouldn't want to see next season's milk payout drop below $6.75

which in historical terms, would't have been a bad payout.

"At six-75, there would still be a profit in it for most operators, but some of your highly leveraged ones might be under pressure.".