Fonterra payout could affect mortgage rates

Fonterra payout could affect mortgage rates

The economy received a boost today with Fonterra announcing an increase in the dairy payout.

Farmers say they might even break even after earlier fears that falling world prices would plunge them deep into the red.

But it's not such good news if you're a hopeful homeowner.

The good times aren't rolling just yet but a lift in the forecast milk price goes a long way.

"It was a surprise it lifted so much," says dairy farmer Neil Bateup. "It's really good news that it has lifted, it still has a long way to go but at least it's moving in the right direction."

Fonterra's predicting an extra 75 cents per kilo of milk solids, which is welcome relief after the full-year accounts confirmed what a rollercoaster year it's been.

Farmers' total cash payout this year is $4.65 per kilo of milk – a massive 45 percent drop from last year's $8.65.

"It's been challenging because we've seen dairy prices move so dramatically down over the 2014-2015 year," says Fonterra chairman John Wilson.

Dairy was hit by a global storm of economic slowdown, embargoes, terrorism and over production.

It's forced Fonterra to cut 750 jobs.

"It's business as usual," says Fonterra chief executive Theo Spierings. "There will not be another wave in terms of overheads."

With Fonterra's profit and the milk price climbing, it won't be just the farmers benefitting.

A higher payout is also good news for New Zealand with a possible $1 billion injected into the economy.  On the downside, homeowners may not get a mortgage rate cut as soon as expected.

"It could well keep the Reserve Bank to hold on a bit longer to assess the facts as they always do before dropping it a bit further," says ASB Economist Nick Tuffley.

That cut could now come in December, rather than October.

But farmers won't mind if the increased payout means they can stem the flow of losses.

3 News