Farmers shocked at lower payout
COLLETTE DEVLIN AND FAIRFAX NZ
Southern dairy farmers say they will throw away their chequebooks after hearing Fonterra's latest forecast payout.
Fonterra announced yesterday that it was revising its milk payout forecast range for the 2012-13 season down 30c, to $5.25 per kilogram of milksolids from $5.50/kg.
The opening season forecast was $5.65 to $5.575 before retentions for a fully shared-up farmer.
Fonterra has also lowered its forecast net profit after tax range to 40-50c a share, from 45-55c at the season opening.
The dairy giant blamed the continuing strength of the New Zealand dollar for the cut.
Shocked dairy farmers in the region said they were disappointed with the forecast.
Woodlands dairy farmer Rodger Whyte's response was: "Jesus . . . unbelievable."
He said it was disappointing and it would make things very difficult as other costs had gone up.
"If our payout doesn't keep in proportion with costs, everyone will shut up their chequebooks, I imagine," he said.
The latest forecast was the lowest he had seen but he believed it was a worst-case scenario.
Peter Clinton, of Premier Dairies, said it was already a tough year without the latest forecast.
Plenty of dairy farmers in the region were already under pressure with the way the price had been, he said.
"If it [forecast] stays that low, it's going to make it extremely tough, in our eyes," he said.
He said dairy farmers were hoping softening global dairy commodity prices would change for the better and the forecast would lift again.
"This is massive. If it doesn't take a turn and we don't get the rise we are expecting, it's going to leave things extremely tight. It will be a very hard year," he said.
Te Tipua dairy farmer Rod Pemberton said he had expected a low forecast but he had not heard the latest figure.
He would have to batten down the hatches and hoped for a good climate season to help out, he said.
In May, Dacre dairy farmer Andrew Wilkinson said he thought Fonterra's decision to slice 30c/kg from its milk payout forecast was optimistic, so he wasn't surprised by the latest forecast, but he was disappointed.
He was optimistic that prices would go up as the season went on because some signs were positive such as the drought in the United States, which would push up their prices.
"It's a long time until the end of the season and anything can happen, so I won't get upset just yet," he said.
Dacre farmer Graeme Burnett said things were not looking good for dairy farmers.
He said the forecast was the lowest he had seen in a long time and was hoping the price would rise later in the season.
"That is low . . . it's going to put a bit of pressure on things," he said.
Federated Farmers Southland dairy chairman Allan Baird said budgets were tight for farmers as their costs went up and their incomes went down.
Dairy farmers would try to control their costs and hold back on development spending as they worked through the difficult period, he said.
He understood it was a tough environment that Fonterra was trading in, so it had to be conservative at this time of the season, however dairy farmers were hopeful there would be a pick up in pricing in the new season.
Federated Farmers Southland president Russell MacPherson said it was concerning and everybody in Southland should be
concerned about low product price, not only in the dairy industry but in the sheep industry, which was also seeing poor returns. "There are going to be some tough times for Southland communities and it's farmers because of lower commodity prices," he said.
The currency-driven cut in Fonterra's payout means $500 million less for the economy than predicted this dairy season.
BNZ economist Doug Steel said the reduction was no big surprise.
Given the mix of international dairy prices and the strength of the currency, there was always some downside risk to the opening payout forecast, he said.
The final payout for the 2012-13 season will not be known until October next year.
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