Fonterra cuts forecast payout for farmers
Fonterra has cut its forecast milk price by another 25 cents, to below $4.
It has lowered the forecast from $4.15 per kilogram of milk solids to $3.90.
Fonterra says it also expects to pay a dividend to its shareholder famers of between 45 and 55 cents per share. That would mean a total forecast payout this season of between $4.35 and $4.45 per kgMS.
Fonterra says it will retain some of that money for investment, meaning a forecast cash payout of between $4.25 and $4.30 for fully shared-up farmers.
Dairy New Zealand estimates that farmers will need to make $5.25 per kilo of milk solids to break even.
But there is particular concern about those farmers who are carrying high levels of debt.
The cooperative is also predicting a drop in milk production this season of at least 4 percent from last season, saying "farmers have been reducing herd size and feeding significantly less supplementary feed, which is expected to have an impact on this autumn's production".
Chairman John Wilson says: "This further reduction in the forecast farmgate milk price is the last thing farmers want to hear in what is proving to be a very challenging season. At times like this, the business needs to do everything it can to drive every last cent back to farmers.
"Management is fully focused on reducing cost and generating cash right across the business. The continuing lift in financial performance and our balance sheet strength will provide opportunities to support our farmers' cash flows. We will provide an update on this at our interim results on March 23."
Chief executive Theo Spierings says European production has increased more than expected over the past 18 months.
"The time frame for a rebalancing has moved out and largely depends on production reducing - particularly in Europe -- in response to these unsustainably low global dairy prices.
"The long-term fundamentals for dairy are positive, with demand increasing at over 2 percent a year due to the growing world population, increasing middle classes in Asia, urbanisation and favourable demographics.
"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."
Finance Minister Bill English also says new players in the dairy market have brought the price down, meaning the lofty prices from several years ago are unlikely to return.
"New Zealand has some comparative advantages, but what I think what this period of lower prices is showing is that there are other suppliers coming into the global market that we used to have pretty much to ourselves."
However, New Zealand has a number of advantages in its production, and has "deep experience" in world trade in dairy products, and there's growing demand for protein products.
Prime Minister John Key says it'll be difficult for some dairy farmers who will be struggling with debt. He said while farmers are resilient and know prices can fluctuate, they'll be more careful with their spending. He says it was inevitable some farms may be sold because of the low prices.
The Green Party believes the cut in the forecast payout should be the impetus the Government needs to change the economy's direction into research and development.