Fonterra predicts big payout

Dairy farmers are set for a big cash injection after Fonterra said next season's milk payout could reach a record $8 per kilogram.

The opening forecast announced yesterday by Fonterra is $6.90-$7.10 per kilogram of milk solids. This could go even higher if international prices and exchange rates are favourable.

"It is good news for the dairy industry, the local economy and the region," said Manawatu/Rangitikei Federated farmers dairy chairman Robert Ervine, who farms with his family at Rangiotu, near Palmerston North.

An average dairy farm earning about $700,000 would receive an extra $100,000 if the price hits $8 per kilogram.

But Mr Ervine said most farmers had costs of about $4 per kilogram of milk solids, meaning about $400,000 of that went into production costs.

"We also have to get something for getting up at 4.30 every morning to milk cows," he said.

But the forecast increase does mean dairy farmers would get more in their hip pocket in the early season, beginning in July, Mr Ervine said.

"The opening advance rate last year was $2.90 per kilogram of milk solids. The season ahead, it will be $4.30. That's a huge leap and it will make a big difference to dairy farmer's budgets."

But opening forecasts can go down, and farmers can end up with less as the season progresses.

Fonterra chairman Sir Henry van der Heyden said if international dairy prices and foreign exchange rates were to hold to current levels for most of next year, it was possible the 2010/11 payout could be well over $8.

"However, the forecast payout has been set at $6.90-7.10, reflecting a more cautious outlook given the high degree of volatility in the market."

He said the reality was that Fonterra was seeing big swings in foreign currencies and turmoil in some economies.

"These factors could have a big impact on demand for dairy products and the prices we ultimately realise. With this in mind, we believe a payout forecast in the range of $6.90-$7.10 is appropriate."

Mr Ervine said he believed many dairy farmers would use extra milk payment money to pay off debt.

"There will be bankers with smiles on their faces."

The forecast payout means many will be in a better position and those sort of inputs will be part of the farm costs again.

He didn't expect a stream of conversions from sheep and beef farms to dairying as a result of the increase forecast.

"Lamb and beef is going better and the market outlook is reasonable. So there is not the pressure to convert to dairying.

"At the same time dairying faces some uncertainty particularly from regulatory challenges" Mr Ervine said.

- © Fairfax NZ News