Pay­out cut fore­see­able given high Kiwi dol­lar

South Waikato News - - RURAL DELIVERY -

DAIRY farm­ers are shrug­ging off a cut in Fon­terra’s fore­cast dairy pay­out, the sec­ond this sea­son, and econ­o­mists say the 15c chop is fairly pre­dictable and the bumper pro­duc­tion sea­son should counter it.

Fon­terra said it had cut its pay­out fore­cast for the 2011-2012 sea­son by 15c to $6.75-$6.85 in the face of fall­ing com­mod­ity prices and a strong Kiwi dol­lar.

The new fore­cast com­prises a lower milk price of $6.35 a kilo­gram of milk­solids, down from $6.50.

The sea­son’s dis­tributable profit range fore­cast re­mains un­changed at 40c-50c a share.

There have been price falls in five of the last six auc­tions on Fon­terra’s on­line plat­form Global Dairy Trade.

The New Zealand dol­lar slipped to US81.74C on the news, down from US82.05C ear­lier in the morn­ing, be­fore re­cov­er­ing to just over US82C be­fore mid­day.

Chair­man Sir Henry van der Hey­den said the dol­lar’s con­tin­u­ing strength, higher global milk pro­duc­tion and in­ter­na­tional mar­ket un­cer­tainty prompted the board to lower the milk price fore­cast. Fed­er­ated Farm­ers said the cut was ex­pected and was the re­sult of Fon­terra ‘‘play­ing a lot closer to the mar­ket now’’. ‘‘They are a lot closer to re­al­ity (with pay­out fore­casts) than in the past maybe,’’ Fed­er­ated Farm­ers dairy chair­man Willy Le­ferink said. ANZ chief econ­o­mist Cameron Ba­grie said the cut was un­wel­come but ‘‘a bit of a mar­ginal call’’ in its likely im­pact on farm­ers’ bot­tom line be­cause of the good pro­duc­tion sea­son and lower feed costs.

Mr Ba­grie said that com­ing on top of last week’s slide on Wall Street on re­newed fears of de­fault in Greece, con­cerns about China’s slow­down, and the Re­serve Bank fore­cast­ing a higher dol­lar but lower in­ter­est rates, the pay­out cut was a timely re­minder that sen­ti­ment to­wards the dol­lar should not get too far away from ‘‘eco­nomic fun­da­men­tals’’.

The New Zealand dol­lar was at­trac­tive to for­eign cur­rency mar­kets com­pared to the green­back and euro, which re­flected their trou­bled economies, he said.

Mr Ba­grie said the main is­sue for the dairy in­dus­try now was the 2012-2013 sea­son pay­out.

But he said the grass-roots fun­da­men­tals still sup­ported a con­tin­u­a­tion of ‘‘pretty el­e­vated’’ in­ter­na­tional dairy prices.

BNZ econ­o­mist Doug Steel said the cut was of ‘‘some sur­prise’’ but not en­tirely out of the blue, given the strength of the dol­lar and the de­cline in com­mod­ity prices.

Fon­terra Share­hold­ers Coun­cil chair­man Si­mon Couper said the cut was ‘‘not a huge move­ment’’.

‘‘It’s never great to see pay­out go down but farm­ers should be able to with­stand it,’’ Mr Couper said. Fair­fax NZ

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