18 Nov 2015

Fonterra's forecast payout under pressure

6:07 pm on 18 November 2015

A third consecutive slide in world dairy prices has seen them slip further away from the $3000 per tonne mark, which many farmers need to break even.

Fonterra sign

Photo: 123RF

In the overnight global dairy trade auction, the price of whole milk powder, which underpins what Fonterra pays its farmers, fell by 11 percent to $US2148 a tonne.

The overall index was down by 8 percent to $US2345.

AgriHQ dairy analyst Susan Kilsby said the latest falls put pressure on Fonterra's forecast payout of $4.60 a kilogram of milk solids, which the co-operative is expected to review at its annual meeting next week.

Federated Farmers dairy chairperson Andrew Hoggard said it was too hard to say what Fonterra would do, but falling prices would put pressure on the farm gate milk price.

The message that New Zealand's milk production was falling wasn't having an impact on buyers, he said.

"Talking to Fonterra, they've still got a feeling that a lot of the buyers overseas just don't believe that the production has actually dropped in New Zealand.

"They think we're just playing games and that we've got a secret wee stash... in some warehouse somewhere.

"Hopefully they'll wake up to the reality is that production has decreased here in New Zealand."

Farmers remained in incredibly tight times, he said.

"Compared to previous seasons we are still in a very low period for payments, things are still exceedingly tight and it's going to be a rough season."

There have been predictions that next season (2016/17) will be in the mid $5 payout range, with dividends taking it up to $6 per kilogram of milk solids.

"We need to see some corrections from other markets around the world. New Zealand farmers alone can't correct the international market so we do need the price signals to flow through to foreign farmers so they start adjusting."

Money wasn't being spent on things unless it was absolutely necessary, he said.

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