21 Jul 2015

Dairy firm cuts forecast farmgate price

1:55 pm on 21 July 2015

New Zealand's second biggest dairy processor after Fonterra, Open Country, has reduced its forecast farmgate milk price to below $4, the first to do so as international dairy prices continue to fall.

Open Country, which is 70 percent owned by the Talleys Group, operates three plants in Waikato, Southland and Whanganui, processing well over 1 billion litres of milk a year.

Its chair Laurie Margrain said its forecast payout for this season (2015/16) now sat in the high $3 region.

"The forecast payout range for this year has been dropped to just below the top of the range to just below $4," he said.

"Currently in our forecast we are reflecting what we see today, in terms of exchange rate, foreign currency, contract positions, and sale prices in the market place.

"What we're also reflecting in these forecasts are what we think will happen to sale prices as the season goes on, and I think it may be fair to say that we've taken a more conservative view of the price recovery than perhaps might be the case with other interested parties."

Mr Margrain said the company disclosed its payout prices only to its 750 suppliers and he would not be drawn on what the final payout would be for last season (2014/15).

He said the company was offering a guaranteed milk price scheme, as a one-off later in the season, which he said was above $5.

Mr Margrain said the amount of milk locked into the scheme was only 2 percent of the company's overall supply, and was only with a small number of farmer suppliers.

Fonterra's forecast payout for the 2015/2016 season remained at $5.25 per kilogram of milk solids, but the co-operative said it would be reviewing that at its next board meeting in early August.

Tatua milk price expected to be $6 range

Farmers supplying the country's smallest dairy co-operative, Waikato-based Tatua, are again in line to get the highest milk payouts, as has nearly always been the case.

Tatua chief executive Paul McGilvary was not able to give specific prices for the 2014/15 season, or this season, but he said they were both expected to be in the $6 range or above.

"We've told our suppliers that we're expecting our cash payout to them to be somewhere in the range of $6.50 to $7."

He said the preliminary budget for the 2015/16 season was indicating a forecast payout to be around $6.

But while Tatua's forecast payout sits higher than other dairy companies, Paul McGilvary said it was difficult comparing prices of different companies.

"Our product mix is actually quite different to most of the other companies, for example we don't make milk powder, butter or cheese," he said.

"We do make protein-based products and as a higher proportion of our sales than other dairy companies, so that's part of the reason.

"And the other thing is we make quite a lot of high-value-added products and proportionately they would be much higher for our company than most of the others."

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