Fonterra forecast raised to a record
A new record milk price forecast from Fonterra adds up to $4 billion extra for the economy from dairying in the 2014 year.
"That's an enormous number, getting towards two per cent of GDP [gross domestic product]. It's large in anyone's language," said BNZ economist Doug Steel.
Fonterra lifted its forecast by 30c/kg to a record $7.80, attributing it to continuing strong international dairy prices. The rise blows away fears that the dairy giant's revenues - and New Zealand's trade reputation - would take a big hit from a consumer backlash to the botulism scare.
The new forecast breaks the 2010-2011 record milk price of $7.60.
The 30c increase equates to $525 million for the economy, Mr Steel said.
When added to Fonterra's previously announced estimated dividend of 32c per share, farmers' can anticipate a cash payout next year of $8.12.
Mr Steel said the $4 billion extra that dairying can now be expected to pump into the economy in comparison with last year assumes milk production will be up, as predicted, by 6 per cent over the 2013 year, which was marred by prolonged drought.
Regional economies should pick up the pace thanks to the milk price lift, he said.
"It gives options to those that are receiving it whether they spent it, save it, invest it, or pay down debts.
"I would say all those options will happen.
"Even if it gets spent with [farmers] trying to keep up with rising costs, farmers' costs are someone else's income. It will generate more activity in the regions."
Federated Farmers said a roller-coaster month-to-forget for Fonterra looked set to end on a high.
"This revision underlines that the fundamentals of the New Zealand dairy industry remain strong," said Willy Leferink, dairy arm chairman.
Fonterra farmer watchdog, the Fonterra Shareholders Council, said all of New Zealand would benefit from the forecast milk price rise.
Ian Brown, chairman of the council which represents 10,500 dairy farmers, said most farmers were still working though the effects of the drought, so the increase was very welcome.
ASB chief economist Nick Tuffley said the new milk price would be achievable even if prices moderated slightly over the rest of the season.
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