NZ economy facing multibillion-dollar hit

Last updated 11:57 26/05/2014

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The economy may have to wear a hit of several billion dollars if predictions of a big dip in Fonterra's forecast payout for next season prove correct.

Fonterra is expected to announce next season's forecast on Wednesday, and dairy farmers are expecting it to drop from a record $8.65 a kilogram of milk solids this season to as little as $6.50 in the 2014-15 season.

If they are right, a dairy farmer whose herd produces 115,000kg of milk solids would receive $747,500 next season, $247,250 less than the $994,750 expected this season under a $8.65 payout.

Such an announcement could affect confidence at the National Fieldays, opening at Mystery Creek near Hamilton in two weeks, and have spill-on effects throughout the country.

Federated Farmers national dairy board chair Willy Leferink is predicting $6.50 on the back of seven straight drops in the global dairy auction and a high New Zealand dollar.

Dairy commodity prices fell 1.8 per cent in Fonterra's global dairy auction last week, continuing a three-month decline that has seen the prices the world is prepared to pay for New Zealand dairy products fall by more than 20 per cent.

Prices are at their lowest level since February last year.

Leferink said the immediate flow-on effects to the wider economy of a cut in the predicted payout would be months away, as farmers were operating on the current season's payout.

He said he expected the prices at the global auction to rise, as consumer demand for products was still high.

"I think we are bottoming out. But in the end, who can predict the market?"

ANZ chief economist Cameron Bagrie said he expected the forecast payout to drop to about $7.

"We expect Fonterra to shave 20 cents and 35c/kg MS off the current milk price forecast of $8.65/kg MS for 2013-14, with risks of a larger cut."

He rubbished the idea that the recent scandals involving Fonterra had any impact on global dairy prices.

"We've still got milk powder prices trading around $3900 a tonne ... that's still well above average.

"We ve taken out a bit of cream but, boy, there's still a fair bit of froth there."

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- Stuff

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