Farmers under pressure in lower forecast
A $500 million cut in Fonterra's payout forecast has provoked sharply different reactions, with economic specialists saying it is too early in the new season to be gloomy, while rural groups warn farmers are under immense pressure.
New Zealand's biggest company - which totals 89 per cent of the dairy industry - has shaved 30c off its opening forecast for the 2012-2013 season, blaming the continuing strength of the Kiwi dollar. This takes the predicted milk payout down to $5.25/kg milksolids from $5.50 and Fonterra's forecast net profit after tax range to 40-50c a share, from 45-55c.
The cut means about $122m less for the Waikato economy than forecast. Waikato farmers make up about 24 per cent of Fonterra's total milk supply base.
The dairy giant's final payout for the 2012-2013 season will not be known until October next year.
Final payout for the 2011-2012 season just ended has also yet to be announced, but is expected to hold at around the forecast $6.55. Payout in 2011 was $7.90.
BNZ economist Doug Steel said the payout chop was no big surprise.
"It's still really early days, milk flow has barely started."
Mr Steel agreed with Fonterra leaders that improving prices on Fonterra's online auction platform Global Dairy Trade (GDT) and global weather events, including a US drought, pointed to strengthening dairy prices.
Waikato specialist dairy farming accountant Nigel McWilliam said it was very early in the season for "panic".
"The reality is that (world) whole milk prices have bottomed out but the trough is much less than the trough of three years ago."
McWilliam believed prices could recover to the US$3500 mark by Christmas, and said Fonterra made the bulk of its sales after Christmas anyway.
But Federated Farmers said the forecast cuts by Fonterra are "harbingers of harder economic and farming times".
Dairy wing chairman Willy Leferink said with farm working expenses before interest and tax already around $4.20/kg and milk flow barely started, Fonterra's key milk price of $5.25 left little or no headroom.
"It has been a hell of a wet season and with calving still underway, farmers are under immense pressure."
He urged farmers under financial stress to seek help from their farming neighbours and to be open with their banker.
"If you feel overwhelmed, don't be stoic. We don't want to see things bottled up and nor must we allow animal welfare to slide either."
Farmer watchdog, the Fonterra Shareholders Council also urged farmers to seek help at this "very expensive time of year".
But council chairman Ian Brown said a 17 per cent improvement in GDT over the last quarter was a positive sign for improvement.
ANZ chief economist Cameron Bagrie said $7 payouts were not the "new equilibrium". "Something with a 6 in front of it is probably where the average is going to be. The second message is that we are going to see a lot of volatility. Farmers need to configure their balance sheet appropriately."
- © Fairfax NZ News
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