13 Mar 2012

Federated Farmers says milk payout could drop further

6:30 am on 13 March 2012

Federated Farmers says it will not be surprised if Fonterra revises its milk payout further before the season ends.

The dairy cooperative has cut its forecast farmgate price by 15 cents, meaning farmers can expect to receive $6.35 per kilo of milk solids.

The distributable profit is unchanged at 40 to 50 cents a share, giving a total payout of $6.75 to $6.85 per kilo.

Federated Farmers says the drop is not surprising, on the back of falling commodity prices, a high Kiwi dollar and China's reduced growth forecast.

It says farmers budget cautiously in case of downward revisions of the payout, more of which could be expected in the current economic climate.

An economist at the Bank of New Zealand, Doug Steel, shares that view.

He says the payout next season could fall as low as $6, based on more production overseas and demand, while growing, not quite as strong as it might have been.

He also says the previous strength of the currency coming through will have an effect. "It takes a while for the lag effect to influence farmer payout."