Fonterra cut hits farmers

19:53, May 22 2012

South Canterbury Fonterra farmers have each taken a hit of $82,400 on average off their bottom line after the co-operative yesterday dropped its forecast payout by 30 cents.

It took the forecast payout for 2011-2012 season, before retentions, to $6.45-$.6.55. The milk payment component of this was reduced to $6.05 per kilogram of milk solids.

The cut would shave around $20.2 million from the local economy and would mean around $500 million less for the New Zealand economy this year.

The cut follows a softening in global dairy commodity prices and was the fourth change to the payout forecast this season, reflecting the rollercoaster ride of the volatile world economy.

South Canterbury Federated Farmers dairy chairman Ryan O'Sullivan said the payout cut came as no surprise, following the downward slide of milk powder prices on the online auction site GlobalDairyTrade (GDT).

It was a "pretty solid" drop for the current season, but one that most Fonterra farmers could live with. The financial hit would be offset by the outstanding season that saw many dairy farmers increase their milk production by 10 per cent, he said.


However, he hoped the payout would not drop any further this year.

Fonterra also announced an opening forecast of $5.95-$6.05kg milk solids for the 2012-2013 season.

Mr O'Sullivan said this forecast was higher than expected.

"I think it's a reasonably solid forecast and I would say that it would be a little bit above expectation. Given the drops in the GDT I don't think it's too bad of a forecast. Farmers had seen what had happened in April with the GDT and that would have lowered their expectations for next year."

The payout revision was a warning for farmers to budget conservatively, Federated Farmers national dairy chairman Willy Leferink said.

"Farmers ought to have two budgets prepared for their farm; one in the low $5 kg/MS range and the other in the mid to upper $5 range.

"Any budget based upon $6kg milk solids I wouldn't recommend. The need to be conservative comes with $5.50kg milk solids being Fonterra's opening 2012/13 season milk price."

BNZ economist Doug Steel said while the latest cut in this season's payout forecast was heavier than expected, the opening season forecast was "mildly positive".

"The new season could have been worse," he said.

The Timaru Herald