Farmers Weigh Up Dairy

By CRONSHAW, Tim

Whether the hot run of dairying conversions on Southland sheep farms will get the speed wobbles could depend on the extent of red meat profits this season.

Higher sheepmeat returns are expected to have a greater bearing on the conversion rate than the lowering of Fonterra’s starting payout for 2008-09 to $6.60 a kilogram of milk solids, down from an earlier forecast of $7/kg. The credit crunch will also have would- be investors looking closely at their numbers.

Last season’s 110 conversions for an average 500-cow farm, due to be milking soon if not already, are expected to be followed by 100 conversions this season.

Federated Farmers Dairy Southland chairman Rod Pemberton said there was talk they would be joined by another 100 new dairy farms the following season.

The shortage of world milk stocks and a favourable outlook by experts — albeit with a few ups and downs — was encouraging for farmers considering converting land, he said.

“It all depends on the meat price. Most sheep farmers are waiting with bated breath to see what happens this year and how sustainable they will be.”

Southland farmers are hanging out for a $90 lamb, but meat processors have so far picked lamb to be about $80. This is better than the low returns of the last three years, but below the $220 some experts estimate are needed for sheep farmers to match their earnings with dairying.

Builders say that for every milking shed completed another two are coming on the books.

Pemberton said workers were difficult to find and conversion timetables were falling behind because of high demand for their services.

Specialist contractors were “snowed under” and working seven days a week with recruits brought in from Christchurch.

“Costs are also going up and seem to be out of proportion with the likes of steel costs. We budgeted our new milk shed (54 automated rotary) would be about $955,000 in June and the last time we revisited it the cost was up to $1.03m. With the pressure on you can kick up a stink, but you cannot go anywhere else.”

This price is now regarded as cheap in Southland.

The appeal of dairying in the high rainfall region is savings made from no irrigation costs. Irrigation is only required north of Riversdale.

The milk rush dwarfs an earlier run of conversions in the early 1990s and 40 conversions in 1999.

Environment Southland has 735 registered consents for dairy farms in its area. This represents about one fifth of Federated Farmers’ 3500-strong membership.

Behind the latest conversion rush are mainly sheep farmers looking for a profitable alternative and expanding dairy farmers, with the odd corporate entry.

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