Payout cut foreseeable given high Kiwi dollar
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