NZ’s Fonterra slashes forecast payout as prices slide

It had previously been projected to be $5.25.

In addition, Fonterra has announced it is making a payment of NZ$0.50 per shared-up kilogram of milk solid to provide co-operative support to its farmers this season.

The price for milk solids was cut following the “continued significant imbalance” in the global dairy market as a supply surplus and weak demand continues, Fonterra chairman John Wilson said.

“We are in a hard position right now with global dairy prices – they are clearly totally unsustainable”, he told a phone conference this afternoon.

“Futures prices are indicating another 6 percent fall for whole milk powder this week”, said Con Williams, rural economist at ANZ Bank New Zealand Ltd.in Wellington.

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.

“What has gone wrong”.

“We are heading towards levels where it is uneconomical to produce long term and that is going to have to correct itself”.

He said at $3.85 it was below the cost of production for nearly everyone and those with debt would feel it acutely.

This projected price level will sorely test farm system resilience and confidence.

“Repairs and maintenance, fertiliser and supplementary feed costs make up about half of a farmer’s working business expenses”. Farmers are used to volatility. The final number of job cuts will be confirmed in September. “So when milk price goes down, we will generally see these cost areas reduce”, says Matthew. “Noone is making any money at that price”.

“It’s hell for everyone this year and the dairy auction is returning close to $3 at the moment”.

“In the last few years, the budget has been changed three times a season”.

Fonterra is expected to slash its forecast payout to farmers this afternoon, potentially wiping billions of dollars out of the rural economy. It also puts pressure on the communities around them.

Dairy giant Fonterra expects deliveries to contract two per cent in the coming 2015/16 period compared to the prior season.

Dairy prices slumped to a 12-year low at this week’s GlobalDairyTrade auction amid a global glut, hurting New Zealand farmer incomes and threatening to curb economic growth in the nation that relies on dairy for a quarter of its export earnings.

The price of skim milk powder – a key product for the country’s second biggest dairy co-op, Westland Milk – dropped by 14.4 per cent to US$1419 a tonne.