Farmers’ smiles return after price hikes
Accused named
Fonterra’s price hikes to farmers will inject $594 million in GDP into the economy over the next year, and lift the average dairy farmer income by $80,000.
The dairy giant announced on Wednesday two price rises: the first of $6.15 per kg of milksolids for the 2016-17 season, and an opening forecast of $6.50 for the 2017-18 season.
It also has retained its earnings guidance of 45-55c per share and its cash dividend target of 40c.
Since last year’s low final price of $3.90, dairy income will soar by $4.2 billion once this season’s final payout has filtered through. Fonterra farmers contribute $3.2b of this, with the remainder coming from other processors.
Federated Farmers dairy industry chairman Andrew Hoggard said Fonterra’s favourable forecast was not unexpected and reflected the recent trend of increasing global dairy prices.
‘‘Many dairy farmers throughout the country will be enjoying their lunch today. This is great news and comes after a turbulent few years where the industry has been under the pump.’’
ASB analyst Nathan Penny described the 2017-18 opening forecast as ‘‘a shade more bullish than we had expected’’. It would likely lead to an increase in farmer confidence and bring forward some farm spending and investment.
DairyNZ chief executive Tim Mackle said the increases would boost regional and national economies, but cautioned that farmers would need to commit 80-85 per cent of the $6.50 milk price on running their business.
Most farmers will not see the extra money in their bank account because they have to repay Fonterra the loan they took out 18 months ago. Once the payout goes above $6, Fonterra withholds the extra. About 75 per cent of farmers took out a loan for a total of $373m.
Mackle said farmers also had to put pasture first, and if supplementary feed was needed, they should use feed crops such as beet and maize.
This winter cash flow would be improved with Fonterra’s starting advance rate of $3.70 (versus $2.50 last year) and retrospective payments coming through.
Regionally, Canterbury receives the largest boost from the $6.50 forecast, by $152m, followed by Waikato ($136m), Taranaki ($61m), Southland ($57m), Manawatu-Whanganui ($30m) and Bay of Plenty ($28m).
Hauraki Plains farmers Peter and Karen West said much of the extra income the new payout will generate would go into paying off debt borrowed from the bank during the downturn of prices.
‘‘The average dairy farmer increased their debt by about 11 per cent in the last two years,’’ Peter said.
‘‘It will take us five years for us to get back to where we were with the downturn and the droughts we have had,’’ Karen said.
Peter said the $6.50 forecast was a ‘‘sweet spot’’ in terms of what was happening in the world dairy market.
‘‘US exports are starting to crank back, the Europeans aren’t making any money so they aren’t exporting, Australia and New Zealand haven’t had a good year. Everything is in balance.’’
He said exporters would start increasing production once milk powder prices lifted above US$3500 per tonne. Currently prices sat at just over US$3000 and it would not take much for US farmers to increase production, particularly if feed grain was cheap.
DairyNZ has estimated this season’s milk production figure would be only slightly reduced at -0.5 per cent, and has projected a 2 per cent increase in 2017-18, which could lower prices. It said farm working expenses were an average $3.65-$3.75, the lowest level since 2009. The break even milk price for 2016-17 was estimated at $5.20, forecast to rise to $5.40 in 2017-18.
Waikato Federated Farmers president Andrew McGiven said the $6.50 hike was great news for farmers and for the economy, but he thought Fonterra would have opted for a more conservative forecast. A Turangi man accused of murdering his baby daughter can now be named. Donovan Michael Duff, 40, appeared in the Taupo District Court on Wednesday, via video link, accused of murdering his daughter Maija Phui-Duff. Maija was ninemonths-old when she died in in Turangi on March 12, 2016. Duff entered no plea on the charge.