No cream com­ing from Fon­terra

South Waikato News - - Your Paper, Your Place - AN­DREA FOX, GER­ALD PID­DOCK

All the money’s on Fon­terra an­nounc­ing a new sea­son milk price fore­cast in the $4 range – an im­prove­ment but not enough to get dairy farm­ers into greener pas­tures.

Farm­ers, bank econ­o­mists and in­dus­try ob­servers are unan­i­mous the 2016-2017 fore­cast, tipped to be an­nounced on May 25 or 26, will be un­der $5 a kg of milk­solids, with most pick­ing the $4.50 mark.

Fon­terra is also ex­pected to up­date the cur­rent sea­son’s fore­cast, now sit­ting at $3.90.

Any milk price un­der $5 will chal­lenge many busi­nesses to make a re­turn, ANZ economist Con Wil­liams said.

‘‘For sus­tain­able prof­itabil­ity and new in­vest­ment (of cap­i­tal and peo­ple) in the in­dus­try a milk price in the high $5 to $6 is needed,’’ he said.

The nine-year av­er­age milk price had been $6.35, be­fore in­ter­na­tional com­mod­ity prices started to slump at the end of the 2013-2014 sea­son, he said.

A milk price in the low $5 range would be help­ful for ap­proach­ing break-even, but would still be a dis­in­cen­tive to in­vest­ment in the in­dus­try and would not be sus­tain­able.

Wil­liams ex­pected the 2015-2016 fi­nal milk price, which will not be known un­til Oc­to­ber, not to shift much from $3.90 – ‘‘maybe 5c ei­ther side’’.

There are also re­newed calls for the big dairy co-op­er­a­tive to is­sue its new sea­son fore­casts ear­lier than the end of May, the dead­line re­quired by dairy in­dus­try leg­is­la­tion, be­cause by now farm­ers have had to do their bud­gets and sign up to ser­vice provider con­tracts based on a ‘‘gues­ti­mate’’.

Wil­liams goes fur­ther. He wants Fon­terra to dis­close ev­ery month three pieces of in­for­ma­tion – its lat­est milk price fore­cast; the year-to-date milk price achieved; and the milk price achieved for the month.

‘‘Then peo­ple can ap­ply those num­bers to their business how they see fit, but they would get a bet­ter sense of where the price is dur­ing the sea­son. So if you’re half­way through the sea­son and the milk price fore­cast is $4.50 but year-to-date it’s only $4, then that’s quite a lot of down­side risk and they can man­age their risk ac­cord­ingly,’’ he said.

BNZ economist Doug Steel said a monthly fore­cast up­date would be help­ful.

Fon­terra is ex­pected to an­nounce a rise in the milk price fore­cast.

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