Lower payout expected for Xmas
Santa may not bring what dairy farmers want this festive season, with most analysts expecting a drop in the Fonterra farmgate forecast payout before Christmas.
Under the terms of the Dairy Industry Restructuring Act, Fonterra is legally obliged to provide an update on the forecast payout in December.
Federated Farmers, though, remains optimistic the dairy giant will maintain its forecast price of $6.75 per kilogram of milksolids, set in July.
Dairy group chairman Chris Lewis said the milk market was competitive in the heavy producing regions of Waikato, Manawatu, Canterbury and Southland and other processors were paying good prices.
For example, in a letter to shareholders this week Westland Milk Products has pledged to hold its earlier range of $6.40 to $6.80 for this season. He also pointed out the dollar had depreciated from 74c against the US currency last year to 68c now, which would help support prices. But analysts say the latest global dairy auction results and other market signals are pointing towards a revised figure around the $6.50 mark.
If that was the case it would mean a reduction of almost $500 million for the economy. For the average farmer, it would mean a $39,000 drop in income, based on a 419 average herd size that milks 373kg per cow. Agrihq’s Amy Castleton said the outlook was generally weaker. She agreed a lower dollar helped, and while Fonterra hedged much of its foreign exchange requirements, there was still a portion of its sales that was subject to exchange rate movements.
OM Financial said if prices remain unchanged to the end of the season in May, it estimated a payout of $6.62, but by incorporating NZX dairy futures, it projected a weaker milk price of $6.50. ASB rural economist Nathan Penny trimmed his forecast to $6.50, pointing out prices had now fallen for four consecutive auctions. Over this period, overall and whole milk powder prices dipped by about 10 per cent, while butter prices eased nearly 15 per cent. Anhydrous milk fat has been the lone holdout, rising about 2 per cent over the same period.
Milk production for October lifted 2.9 per cent compared with a year ago, after August and September had been behind last year’s levels.
Rabobank analyst Michael Harvey would not be drawn on a number, except to say there was a likelihood of a downward revision to Fonterra’s forecast payout.
Westpac economist Shyamal Maharaj supported a revision.