Relief on the farm as dairy prices rebound
Fonterra’s milk price increase from $6.50 to $6.75 per kilogram of milk solids for 2017-18 will be worth an extra $500 million to the economy.
DairyNZ says the additional farmer income will increase forecast milk earnings to a total of $12.5 billion for the season.
The co-operative also announced a forecast earnings per share range of 45 cents to 55c, making the forecast total available payout to farmers in the 2017-18 season $7.20 to $7.30, before retentions.
The rise on the back of last season’s expected $6.15 was a heartening turnaround for farmers, who needed more than one good season for balance sheets to move into positive territory after low payouts in 2014-15 and 2015-16.
Federated Farmers dairy group chairman Chris Lewis said it was ‘‘fantastic news’’.
‘‘Good on Fonterra, they are working hard to capture all the value they can.’’
Processors making value add products and catering for the increased popularity of fats would be in a good position, whereas those producing whole milk powder only would struggle, he said.
The 25 cent lift on the farmgate forecast for the 2017-18 season was welcomed by farmers experiencing wet conditions around the country, DairyNZ’s senior economist Matthew Newman said.
‘‘Farmers will use this extra income to pay down some of the additional debt they had to take on over the seasons of low pay outs. Then many will take the opportunity to put money back into their farms by way of carrying out required maintenance, and adding necessary infrastructure.
‘‘I hasten to add, however, that while the forecast price increase is $6.75 per kg of milk solids, the estimated national break-even price of $5.45 will increase this season due to additional farm costs and higher tax payments.’’
Fonterra chairman John Wilson said the revised forecast reflected the rebalancing of supply and demand in global dairy markets. Confidence of a good season was growing among farmers.
The forecast payout for the completed 2016-17 season remains at $6.15 with earnings per share of 40c, and has yet to be confirmed by Fonterra.