Dairy farmers welcome 50c boost
Fonterra’s announcement of an increase in its forecast farmgate milk price for the current season by 50 cents to $4.75 a kilogram of milksolids is a great morale booster, Federated Farmers says, and should add almost $1 billion to the economy.
When combined with the forecast earnings per share range for the year of 50c to 60c, the total payout Fonterra’s dairy farmers can expect is $5.25 to $5.35 before retentions.
It means an extra $70,601 for the average farmer milking 419 cows at 377kg MS.
Federated Farmers dairy group chairman Andrew Hoggard welcomed the news, and especially the extra 10c advance rate for milk produced in August.
He pointed out that farmers would not receive the full $4.75 until October next year, but the advance payment would be helpful for farmers under pressure.
The combined payment with dividends of $5.25 to $5.35 was 10 cents above the Dairynz breakeven figure.
Fonterra chairman John Wilson said current global milk prices remained at unrealistically low levels, but had started to improve as global demand and supply continued to rebalance.
‘‘Milk production is reducing in most dairying regions globally in response to low milk prices and this is bringing the world’s milk supply and demand back into balance,’’ he said.
‘‘Milk production in the EU is now in decline and our New Zealand milk collection at this early stage is around 4 per cent lower for the year to date.
‘‘Prices have increased on Globaldairytrade but the increasing NZD/USD exchange rate continues to offset some of these gains.
‘‘We expect the dairy market to be volatile over the coming months and will continue to keep our forecast updated for our farmers as we move into the season.’’
Fonterra is required to forecast its farmgate milk price every quarter under the Dairy Industry Restructuring Act.
Hoggard warned about the impact of a rising dollar, which increases in line with higher export prices. He said farmers should also remember this time last year when prices lifted momentarily, only to tumble later.
However, this season the situation appeared to be different, with lower global production.
ASB economist Nick Tuffley said the revised forecast reflected the good prices achieved at the last two global dairy auctions, which saw a rise in the whole milk powder price of 28.8 per cent.
‘‘We’re still of the view we’ll see the final milk price reach $6. We’re expecting further price pressure to come over the next three to four months,’’ Tuffley said.
The rising exchange rate was a risk, although Fonterra had some hedging cover in place for the season. The milk price for this season was last raised in September almost a year ago to $4.25 and maintained earlier this month when the expected dividend was lifted to 50c to 60c, from 45c to 55c.
Federated Farmers Southland dairy chairman Graeme Mckenzie said the forecast would have come as a surprise to some farmers, given it is early in the season.
The raised price would likely result in more farmers making it closer to breaking even and gave them more certainty around budgets, he said.