$20,000 payout to ease dairy pressure
An increase in the interim milk payout will result in an extra $20,000 cheque next month for the average dairy farmer and that will mean an injection of confidence, says a farm adviser.
Gary Massicks, of Feilding-based Stantiall and Keeling, said an increase in Fonterra's interim payout by 40c per kilogram of milksolids, would be welcome news for hard-pressed dairy farmers.
Dairy farmers have produced about half their milk flow for the season and they will get the increased interim payout of about $20,000 in a lump sum.
"This rise was not a surprise, but this is at the upper end of what many people expected."
Dairy farmers get part of the final payout in milk cheques during the season - the interim payout.
Mr Massicks said for many the farmers, this would be a catch-up.
"They were sitting on their hands and not spending any money. There wasn't much confidence in dairying. This will release a lot of pressure and enable some to pay off their overdraft."
The advance payment was $3.85 kg/MS and moves to $4.25, which would make a big difference to struggling dairy farmers, Mr Massicks said.
The average farmer produces about 100,000 kg/MS and they will get $25,000 -most of it now, and $5000 spread from February to the end of the milk season in July.
Manawatu/Rangitikei Federated Farmers president and Kiwitea dairy farmer Andrew Hoggard said the increased payout had come at an opportune moment, because most dairy farmers had been dealing with increased working expenses of about $3 to $4 kg/MS.
"Probably an average at $3.50 and add in around $0.60kg/MS for overheads such as ACC, tax, and rates, as well as debt servicing of around $1.30 kg/MS. That shows the margins are very tight."
Fonterra's board has announced:
A higher forecast farmgate milk price of $5.50 per kilogram of milksolids for the 2012/13 season, up from $5.25 on the previous forecast;
A forecast net-profit-after-tax range of 40c to 50c per share, consistent with the recent Fonterra Shareholders' Fund Offer prospectus;
A 40c increase in advance rate payments to farmers.
Fonterra is required to consider its farmgate milk price every quarter as a condition of the Dairy Industry Restructuring Act (Dira).
Fonterra chairman Sir Henry van der Heyden said after considering farmer shareholders' cash flow requirements, and the strength of the co-operative's balance sheet after the launch of Trading Among Farmers (Taf), the board had decided to lift advance rate payments to farmer shareholders.
"The immediate effect of this decision is that our farmers will have more money flowing into their bank accounts from late January when they are paid for the previous month, and that will help them with their cashflows.
"Between 1 August and the most recent GlobalDairyTrade (GDT) trading event, prices have increased by an average 17.7 per cent.
"While there was a drop at last week's GDT event, it has not changed our overall commodity price forecasts."