Dairy farmers hit in pocket

19:56, Jul 29 2014

Fonterra's drop in its latest payout forecast yesterday equates to a potential $114 million blow to South Canterbury dairy farmers' pockets.

The dairy giant announced farm-gate prices sliding to $6 per kilogram of milk solids for the 2014-15 season, after an initial $7 prediction in May.

South Canterbury Federated Farmers dairy chairman Ryan O'Sullivan said the latest announcement was just another illustration of the dairy industry's volatility.

"The final payout isn't till this time next year. Twelve months in dairy is a long time," he said.

O'Sullivan said dairy farming was like any business and there were no guarantees but there was still a fundamental demand for dairy throughout the world.

"There's no reason to get overly worried.


"If we finish up with 25c or 30c dividend on top of the $6, it's not a bad milk price.

"There's no need to get apocalyptic," he said.

South Canterbury dairy farmers would be affected the same way as farmers across the country, and those laden with high debt levels would need to reconsider their cost structures, he said.

"Those farmers, however, are in the minority, not the majority."

ASB rural economist Nathan Penny had predicted earlier in the month that dairy farmers would get $6 to $6.20 per kg for milk solids for the upcoming season.

At the time he said the South Canterbury economy was still in reasonable shape, with the flow-on effects from the Christchurch rebuild and activity at the port.

However, he did say farmers' spending in local businesses would be curbed.

Fonterra chairman John Wilson gave strong global production, a buildup of inventory in China, and a fall in demand in some of the emerging markets due to high prices as reasons for the fall in the forecast.

"In addition, the New Zealand dollar has remained strong," he said.

Meanwhile Fonterra chief executive Theo Spierings said with the continued drive for growth in consumer and food service businesses, he expected reduced cost of goods arising from lower dairy commodity prices would have a positive impact on returns.

"Our forecasting anticipates some recovery in global dairy prices but it is too early to predict how strong this recovery will be or when it will kick in.

"We will provide an update on business performance when we announce our annual result on September 24," Spierings said.

The Timaru Herald