Lower milk payout 'still very good'

Although Taranaki dairy farmers face a drop in income of thousands of dollars next season, they are philosophical about Fonterra's payout announcements yesterday.

The dairy giant has cut this season's forecast farmgate milk price from a record $8.65 a kilogram of milksolids (MS) to $8.40 and is forecasting a payout of $7 next season. Next season's forecast payout will mean a $140,000 loss in gross income for a farmer producing 100,000kg MS.

New Plymouth's Nick Barrett said he was pleasantly surprised at the announcements. "I'm comfortable with the drop in payout this year."

Farmers who had followed market trends would have expected a fall.

"But the change is quite limited.

"And to open with a $7 prediction for next year is very encouraging. While it's a significant drop, it's still a good payout and there's a lot that can happen between now and the end of the season. If we can't make a profit at $7, we've got our farming system wrong," he said. Likewise, Te Kiri's Ian Armstrong was relieved by the announcements because he had feared lower forecasts.

"Without a doubt, $8.40 is a very good payout."

Next season's projected $7 payout was still historically good, although some farmers might struggle.

"It's a reality check . . . We have to budget and be ready for poorer times - not that $7 represents poorer times."

Former Taranaki Sharemilker of the Year Paul Davidson, of Inglewood, who takes possession of his first farm with wife Lorette this weekend, said farmers knew the forecast payout for this season would drop. "And $8.40 is still an excellent figure."

Dairy farmers were familiar with payout volatility and most would still be able to farm profitably on next season's $7 payout, he said.

DairyNZ focus farm host, Chris Prankerd, of Tariki, said the payout drop was expected. "We're still well paid. If it stays at $7 next year, I'll be pretty happy."

For many farmers, this season's projected $8.40 payout would be made on record production, he said.

Fonterra shareholders councillor Noel Caskey said the forecasts reflected the reality of markets for dairy products. "They're a true reflection of where the markets are - and they're not where they were three months ago."

The lower forecasts would have an impact on farmers but the effect should not be too serious. "The payout is still really healthy at $8.40."

BDO Taranaki agrispecialist Mark Irving said $8.40kg MS was still a record payout and a 25c drop was neither here nor there. It was a rare season when good production and a good payout lined up.

Next season's projected payout of $7 would be Fonterra's fourth highest and dairy farming would still be profitable at that figure.

Irving said that the lower payout would mean farmers would have less money for this season's tax bill, so they should talk to their banks about reducing debt or making deposits in income equalisation schemes.

Taranaki Daily News