13 Mar 2012

Prediction milk payout down to $6 next season

10:25 pm on 13 March 2012

An economist is predicting Fonterra's payout per kilo of milk solids next season could fall as low as $6.

On Monday the dairy giant cut its forecast returns for this season by 15 cents, meaning farmers can expect to receive between $6.75 and $6.85 per kilo.

Fonterra is blaming the high New Zealand dollar and an increase in milk production worldwide.

BNZ economist Doug Steel says the same forces, coupled with shrinking demand, could cause the per kilo price fall further next season.

"For this current season, which actually ends at the end of May, we'd like to think this would be the last move. Most of the milk has been made, the currency hedges are in place and commodities are often forward sold, so hopefully those prices are by and large locked in."

But he believes more downward pressure is coming for the following season, 2012-13, with the payout around $6.

"It's likely the payout will be a little bit lower than the current one, based on more production overseas and demand, while growing, not being quite as strong as it might have been and also the strength of the currency."

Mr Steel also says with the payout for that season finalised such a long way away, in October 2013, it is hard hard to be certain of any view.

Fonterra says this season's profit range forecast is unchanged at $570 million to $720 million, which amounts to between 40 and 50 cents a share.