Farmers wait for revised milk payout

This Friday August 7, Fonterra is set to review is 2015/2016 milk price forecast.

“Today’s announcement implies NZ$3.3 billion less revenue than normal for Fonterra’s suppliers”, said Michael Gordon, senior economist at Westpac Banking Corp.in Auckland.

The slump in dairy prices means few farmers will be making money, with farmers facing two seasons of low prices.

Dairy NZ estimates $5.70/kg is the industry average breakeven point for most farmers.

Debt-laden North Canterbury farmer Cameron Henderson was holding his breath for more bad news from Fonterra tomorrow. In Marlborough and Canterbury it’s $1.2 billion.

So how are our dairy farmers coping and what’s being done to help them get through these hard times?

The current production season ends June 2016.

Nonetheless, without signs of a pick-up in demand, or output slowdown, it was likely that prices would not start to recover until next year, Mr McCarthy said, a forecast in line with some other observers such as Danone and Rabobank.

The only mechanism left for Fonterra farmers to vent their frustrations were the director elections later this year, he said.

“The range of possible scenarios is contributing to the uncertainty we are seeing today”.

But Otago dairy chief Steven Crawford said we could be jumping the gun. “The hard thing to call at the moment is exactly when and how quickly”.

It will also make an additional 50 New Zealand cents a share available to farmers who want it this season. These payments are made to farmers throughout the year.

Earlier this week, dairy prices at GlobalDairyTrade, the benchmark auction run by New Zealand giant Fonterra, fell to a 13-year low, prompting questions among from some dairy producers that the events should be suspended, amid ideas of buyers “gaming” the system.

“Given that the next seven auctions account for a significant chunk of annual [GlobalDairyTrade whole milk powder] sales, it doesn’t take a rocket scientist to work out that auction prices of the next two months will weigh heavily on the final milk price outcome for the 2015/16 season”, ANZ said.

The support will be funded by one-off savings generated by changes the business is making, such as improving working capital.

Fonterra also reduced its New Zealand milk volume forecast for the 2015-16 season by 2% versus the previous season.

“We are already seeing our farmers reducing stocking rates and reducing supplementary feeding to lower on-farm costs”.

Fonterra’s 10,500 farmer supplies are not the only ones feeling the pain.