Prospects of dairy payout promising

Fonterra farmers look set to get a payout starting with a six-dollar figure for the current season with the dairy company lifting its previous seasonal forecast range by 25c, but southern farmers will continue to be cautious with spending.

The new forecast for 2012-2013 is $5.90-$6 before retentions for a fully shared-up farmer.

The lifted forecast means the milk price outlook is $5.50/kg milksolids for this season, up from the previous forecast of $5.25.

Federated Farmers dairy chairman Allan Baird said although the news was encouraging in the run-up to Christmas, caution would still prevail.

It was still too early in the season to tell how things would go and he did not think spending would increase too greatly, he said.

"It's a little too early. I don't think farmers will be too overjoyed just yet. A few seasons ago we were close to the $8 mark but once the payout is back in the $6 range, we might see some elation," he said.

If the payout did improve during the season into the $6 range, there could be some discretionary spending on capital projects, Mr Baird said.

The Fonterra board also announced a forecast net profit after tax range of 40-50c per share, consistent with the recent Fonterra Shareholders' Fund Offer prospectus and 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.

Chairman Sir Henry van der Heyden said after considering farmer shareholders' cashflow requirements, and the strength of the farmer co-operative's balance sheet after the launch of Trading Among Farmers (Taf), the board had also decided to lift advance rate payments to farmers.

"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 August 1 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."

Chief executive Theo Spierings said Fonterra's strong balance sheet meant that from a cashflow point of view the co-operative was in a position to increase payments to farmers over the next few months without any significant risk to its financial stability.

Spierings said while the outlook for any movements in the New Zealand dollar exchange rate was neutral, the impact of weather events in other markets was likely to support the lift in forecast farmgate milk price. "There has been a persistent, serious drought in the United States. That has pushed up the price of grain, which in turn affects dairy production.

"There are also concerns about drought in the Ukraine and Russia. In South America, extreme wetness in parts of Brazil and Argentina could also depress wheat production," Spierings said. "Given current global conditions, our forecasting anticipates global dairy prices are likely to move higher in the first half of 2013."

The Southland Times