29 Jan 2009

It may get worse yet, Fonterra warns farmers

8:14 am on 29 January 2009

As dairy farmers face the prospect of a sharply reduced milk payout, Fonterra says it can't guarantee that the payout won't fall even further.

The group has lowered the milk payout forecast for this season by 90c, reducing it to $5.10 per kilogram of milk solids.

That equates to an annual drop in income for the average dairy farmer of $100,000.

Fonterra chairman Henry van der Heyden says falling commodity prices and the ongoing global financial crisis could force farmers to accept an even lower payment.

It's very difficult, he says, to predict how global commodity prices - which have fallen by half in the past six months - will perform in the next six months.

Some positives on other side of ledger

Federated Farmers dairy chairman Lachlan McKenzie says there are still positives for the industry despite the forecast. Falling production costs, for instance, should offer some protection to profit margins.

Mr Mckenzie also points out that the forecast is still the third highest in a decade.

But with some of the payout being held back from April till October, he says, farmers will need to manage their finances carefully.

Fonterra's Shareholders' Council chairman Blue Read says the drop in the forecast is beyond what most farmers expected. But most farmers will survive, he predicts, while rural businesses and the greater economy will suffer the most.

Third time this season

This is the third time Fonterra has lowered the price since its opening forecast for the season, issued last June, of $7 a kilo of milk solids.

Last season it paid out a record $7.66 a kilo.

Chief executive Andrew Ferrier says global dairy market figures suggest the industry is in for a difficult 12 to 18 months but the company is in a good position to work through the challenges.

The country's second biggest dairy co-op, Westland Milk Products, has also slashed its forecast milk payout - from between $6.70 and $6.95 at the season's start to between $4.10 and $4.50.

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