Dairy payout drop could cost area $90 million

A fall in Fonterra's payout this season could cost the Taranaki economy $90 million.

Commentators are predicting Fonterra's forecast payout of $7 will fall after its fortnightly Global Dairy Trade (GDT) auction dropped 8.9 per cent overnight on Tuesday.

Omata farmer Nick Barrett is expecting a payout fall after what he said was a disappointing drop, although it wasn't unusual at this time of year.

He said an immediate impact on farmer spending was likely. A $1 fall in the forecast payout would equate to a 15 per cent drop in farmers' revenue in Taranaki. Cow condition and feed levels were good, so a good start to the season would provide a buffer.

BDO rural specialist, Mark Irving, of New Plymouth, said if reports Fonterra had sold half this season's production at locked-in prices were correct, this week's GDT fall might not significantly affect the payout forecast.

Banks were basing their lending on a $6.50 payout, so dairy farming was still economic.

Although he was advising farmers to spend cautiously this season, they had become more businesslike in the last 10 years and were headed into winter with better cashflows and reserves. Hawera sharemilker and farm owner Bryce Savage said dairy farming was secure even at a $6 payout and good winter cashflows were helping farmers. "We're coming off a high (payout of $8.40 for 2013-14) and most farmers thought it mightn't last.

"With what's been thrown at us in the last two years, we're prepared for anything."

Parininihi ki Waitotara chief executive Dion Tuuta said the incorporation - Fonterra's largest supplier in Taranaki - was not concerned by the drop because it expected market volatility. A $6.50 payout was still economic for PKW, which would oversee costs to maintain a sustainable profit.

Fonterra shareholders councillor Rob Poole, of Auroa in South Taranaki, is disappointed at the price drop. "I was hoping we'd reached the bottom of the cycle."

He said it was a reminder of the need to watch costs.

If the payout fell to $6.25, some farmers would be under pressure. "But those who have used last season's payout to make their business more profitable and more robust will be OK."

Taranaki Federated Farmers president Bronwyn Muir said: "Control what you can control and be careful with your spending."

The fall was on the back of a strong international production season, and she was cautiously optimistic of a rise as New Zealand's season progressed.

Taranaki Daily News