Farmers welcome dairy turnaround
"The signs are for a good start to the season for our farmers and their rural communities." Fonterra chairman John Wilson
A rebound of confidence in the dairy industry has seen Fonterra unexpectedly raise its forecast price to farmers for 2017-18 to $6.75 per kilogram of milksolids.
This is a hike of 25 cents in the farmgate forecast price since the dairy giant announced its first forecast in May.
The co-operative also announced a forecast earnings per share range of 45c to 55c, making the forecast total available payout to farmers in the 2017-18 season $7.20 to $7.30, before retentions.
The rise on the back of last season’s expected $6.15 payout price was a heartening turnaround for farmers, who needed more than one good season for balance sheets to move into positive territory after low payouts in 2014-15 and 2015-16.
Federated Farmers dairy group chairman Chris Lewis said it was ‘‘fantastic news’’.
‘‘I’m sure it will put a spring in the step of every farmer who comes in to their morning tea,’’ he said.
‘‘Good on Fonterra, they are working hard to capture all the value they can. They have a good set-up with their plants with different products.’’
Other processors would have to look at revising their prices in the light of the rise. Open Country Dairy’s forecast set in April was for a range of $6.25 to $6.55.
Lewis said processors making value add products and catering for the increased popularity of fats would be in a good position, whereas those producing whole milk powder only would struggle.
Fonterra chairman John Wilson said the revised forecast reflected the rebalancing of supply and demand in global dairy markets.
‘‘We are seeing growing confidence on-farm across the country and, with global demand for dairy strengthening, the signs are for a good start to the season for our farmers and their rural communities although following a challenging period of very wet conditions for some of our farmers,’’ Wilson said.
Chief executive Theo Spierings said Fonterra was well positioned to take advantage of improving demand for dairy nutrition across its ingredients, consumer and food service markets.
‘‘Our forecasts are prudent given that we are still early in the season and we are starting with very low levels of inventory, and we are focused on continuing to demonstrate strong business performance so as to bring greater returns for our farmers.’’
Milk futures broker Nigel Brunel of OMF Financial said the increase reflected current prices, and based on the futures market, there was even more room to move upwards.
‘‘If you take a snapshot of commodity prices over the last 200 days, then the price could be close to $7.20.’’
The head wind was the strength of the New Zealand dollar, which was at 75c to the greenback.
The forecasted payout for the completed 2016-17 season remains at $6.15 with earnings per share of 40c and has yet to be confirmed by Fonterra.