DairyNZ cuts breakeven milk price as higher than expected production lowers costs for farmers

I read a slightly concerning article on Fonterra yesterday in the NZ Herald on how the debt has ballooned over the last few years to $7.5bn and is now 80% geared which is ,generally,very high for a company.
I know little about Fonterra but are they able to survive a sustained period of milk prices at the current prices?
TIA

I saw they have A- rating and it tended to infer that might be under threat. Their cost of borrowing which up to now has probably decreased due to falling interest rates but if they get downgraded it will start to increase. Looking back they seem to have been way too optimistic and it tends to be over optimism at board level that often results in company underperformance or failure.

With science they are Ok
http://www.dairynz.co.nz/media/3672372/technical-series-march-2016.pdf

This analysis is not science, and best as a survey of historical results.
There are many farming types, farming styles & locations and financial structures that turning the historical survey logic into a forecast is pretty brave.

These are cash expenses - accounting expenses would included depreciation - a considerable figure on a dairy farm with tractors / plant / equipment / houses / dairy sheds etc.

Interesting to read Buffett's latest and previous shareholder letters on whether depreciation is a real cost or not.

This is simply kicking the can down the road - depreciation is a real cost that has to be provided for in any economic analysis of a dairy farm.

Too right JB, I have often wondered about this.

With Fonterra having such high debt levels, will payouts to farmers remain low even after milk price recovery, as they try to service this massive debt. A bit like SFF.

Interesting Pita Alexander articles Henry Tull - back then I had concerns too as to the global milk supply & rising China debt to GDP, and the inability of the last financial crisis to re-balance markets.

I liked this article at the time:
http://www.stuff.co.nz/taranaki-daily-news/opinion/70323554/Rachel-Stew…

What I'm currently interested in is the housing debt in NZ, could that possibly be more worrying than the farming debt? & the actual health of the banks? I see Heartland bank didn't have much equity/reserves in their last shared financial statements! but yet they are posting a publicised profit,
http://www.odt.co.nz/news/business/374173/bigger-loan-book-boosts-heart…

Our other big banks link to Australia
http://www.afr.com/news/economy/employment/uncovering-the-big-aussie-sh…

Be nice if there could be an easy solution/magic wand to fix all this stuff and we can all be positive forever !!
Maybe the extinction of financial greed as a learned human trait ??

and this
https://www.youtube.com/watch?v=j_ktN_h7-J4&feature=youtu.be

Thanks AbbeyD for the link - what will our canary be? Falling prices in rural towns or perhaps Coromandel baches collapsing in a big way. I hope our bank officers have been a bit cleverer than those that gave a 23year old Queenslander over $8m to invest in a one trick country town.

Seems a bit of confusion here. The low milk price is in fact very good for Fonterra as it lowers the price it pays for its raw product which it then processes into a more value added product to make its shareholders richer. It's the supplier that suffers under a low milk price.

I am not following you there red cows? Are Fonterra currently processing their cheap raw product into more value added products ?

Interesting Viewpoint;
http://www.stuff.co.nz/business/farming/77364162/De-intensify-or-sell-d…