Tuesday, 8 March 2016

"The last thing NZ farmers want to hear"

Isn't it amazing that there's an "oversupply" of dairy, coal, iron ore, shipping - everything you can poke a stick at?

Fonterra drops forecast milk payout

Dairy cooperative Fonterra has cut its dairy payout forecast, after the milk price dropped from $4.15 to $3.90 per kilo of solids.

Fencing equipment on an organic farm in the Manawatu.
Photo: RNZ / Alexander Robertson

Radio NZ,
8 March, 2016

Chair John Wilson said difficult conditions in the globally-traded dairy market had put further pressure on the forecast.

Prices at the twice-monthly dairy auctions have fallen in four of the five events held this year.

Mr Wilson said Fonterra still expected added earnings per share from its commercial activities of between 45 and 55 cents.

He said after retentions that would see farmers being paid between $4.25 and $4.30 a kilo. That would be the lowest payout in 13 years
The co-operative said there was still a global surplus of dairy products and two of the biggest consumers, China and Russia, had cut their buying.

"This further reduction in the forecast farm-gate milk price is the last thing farmers want to hear in what is proving to be a very challenging season," Mr Wilson said.

He said the latest forecast cut would knock about $400 million from farmers' incomes this season.

Chief executive Theo Spierings said the global imbalance was expected to continue for longer than previously expected and that would weigh on earnings for some time.

"Our forecast is based on no significant changes to either supply or demand globally before the end of the year. However, a reduction in the supply available for export before then could mean prices recover earlier than currently expected," he said.

The New Zealand dollar, which is often sensitive to dairy prices, fell around 0.25 US cents after the announcement, and was also weaker against most other major currencies.

Westpac economist Michael Gordon said he thought the chances of another cut to the payout forecast this season were slim but the latest blow would further dent business confidence.

He said it would also add pressure on the Reserve Bank to cut interest rates to cushion the economy.


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