27 May 2009

Fonterra milk payout lower than expected

8:16 pm on 27 May 2009

New Zealand cooperative Fonterra is blaming volatile currency conditions and continuing low dairy commodity prices for a lower than expected opening milk payout forecast for next season.

The company on Wednesday announced an opening price of $4.55 per kilogram of milk solids for the 2009-2010 season, which begins next week.

The forecast is below economists' predictions of $4.90 to $5.20 per kilo.

Fonterra processes most of New Zealand's milk and says the $4.55 payout will take hundreds of millions of dollars out of the economy.

Fonterra Chairman Henry van der Heyden says the cooperative was originally looking at a forecast of more than $5, but a higher New Zealand dollar has pushed that figure down.

He says the situation has not been helped by the United States government's decision to re-introduce dairy export subsidies at a time when the global market is showing tentative signs of recovery.

Mr van der Heyden acknowledges that Fonterra's farmer suppliers are already under severe financial pressure. However, it confirmed it is on track to deliver the $5.20 payout forecast for this season, which ends this week.

Federated Farmers dairy chairperson Lachlan McKenzie says farmers are going to have a massive readjustment in their dealings with bank managers.

Mr McKenzie says though the payout figure reflects the average for the past decade, production costs have increased.