Saturday, 30 January 2016 08:46

NZ payout drop delivers a 'sobering blow'

Written by 
Fonterra CEO Theo Spierings Fonterra CEO Theo Spierings

NEW ZEALAND dairy farmers will be forced to make more hard decisions in the season ahead, as the country’s processors slash their forecast farm gate milk prices to well below the cost of production.

On January 28, Fonterra reduced its forecast Farmgate Milk Price for the 2015/16 season from NZ$4.60/kgMS to NZ$4.15/kgMS – about $1.25 less than the average break even cost of production of NZ$5.40.

The January 28 announcement came as Westland Milk Products and Open Country Dairy also reduced their payout forecasts.

DairyNZ said the changes would mean NZ $67,000 less in cash revenue for the average farm producing 150,000kgMS – or NZ$800 million across the sector.

Fonterra chairman John Wilson said global economic conditions continued to be challenging and were impacting demand for a range of commodities, including dairy.
“Key factors driving dairy demand are declining international oil prices which have weakened the spending power of countries reliant on oil revenues, economic uncertainty in developing economies and a slow recovery of dairy imports into China,” Mr Wilson said.

“In addition, the Russian ban on European Union dairy imports continues to push more product on to the world market.”
Mr Wilson said there was still an imbalance between supply and demand which continued to put pressure on global milk prices.

Since last September, prices on GlobalDairyTrade for Whole Milk Powder (WMP) have fallen 12%, and Skim Milk Powder (SMP) prices are down 8%.
“Although New Zealand farmers have responded to lower global prices by reducing supply, that has yet to happen in other regions, including Europe, where milk volumes have continued to increase,” he said.

Chief executive Theo Spierings said while global demand remained sluggish, Fonterra supported the general view that dairy prices will improve later this calendar year.
“However, the time frame for supply and demand rebalancing has moved further out and largely depends on a downward correction in EU supply in response to the lower global prices,” Mr Spierings said.

“These prices are clearly unsustainably low for farmers globally and cannot continue in the longer term.”

He said despite the current challenges, the co-op had confidence long-term international dairy demand will continue its expansion due to a growing world population, increasing middle classes in Asia, urbanisation and favourable demographics.

Mr Wilson acknowledged the reduction in the forecast farm gate milk price would be “very tough on our farmers”.

“As we confirm the co-op’s performance for the first half of the financial year, we will look at the best way to help our farmers’ cash flows, underpinned by the expected improvement in dividend returns and the financial strength of the co-operative.”

Millk production across NZ to the end of December was down 2.6%, with some regions dropping production by up to 9%.

Fonterra Shareholders Council chairman Duncan Coull said the drop was a sobering blow.
"Looking forward, our farmers will be expecting our co-operative model, which sees shareholders benefit from milk price and the value-add side of the business, to deliver for them in terms of the total available for payout.”
In the interim, he encouraged farmers to seek guidance and support on how to best navigate through the tough times.

Dairy NZ chief executive Tim Mackle said tough decisions were being made.
"Farmers will be working extremely hard in their businesses and that can affect health and wellbeing. Many will have to pick up extra work on their farms. Some will be looking for off-farm income opportunities. They will be looking at all their options and banks will be joining in those conversations," he said.

Mr Mackle said although most farmers had already done all they can to reduce costs, DairyNZ would be working with farmers to focus on “tight and skilled pasture management”.
"Pasture is still the cheapest feed to produce and our ability to grow pasture year round is our competitive advantage as a country. We will be working with farmers to get the best out of their farming system and change it if they need to do that.”

He said the positive note for NZ dairy farmers was that home grown feed levels were good over summer.
“El Nino has not been as severe so far as some predicted. Some reasonable rain in December and January has bolstered pasture and crop growth."

More like this

The changing face of breakfast in China

Western-style breakfast is on the rise in China with Fonterra saying rising incomes and a growing middle class in China are fuelling demand for items such as butter, cream and cheese.

First cheese vat installed at Stanhope

THE first cheese vat has been installed at Fonterra Australia’s Stanhope cheese plant, as the build progresses on the multi-million dollar state-of-the-art facility.

Fonterra trumps MG step up

FONTERRA Australia has today advised suppliers that it has increased its average farmgate milk price to $5.10 per kilogram of milk solids, and increased its forecast closing price for the season to $5.20 per kilogram of milk solids.

More from this category

National Foods closes cheese sites

National Foods will sell its cheese processing plants in South Australia and close its two Victorian plants within three years.  The moves were announced as part of a $132 million investment in Tasmania, aimed at rationalising the company’s cheese making business.

NZ payout drop delivers a 'sobering blow'

NEW ZEALAND dairy farmers will be forced to make more hard decisions in the season ahead, as the country’s processors slash their forecast farm gate milk prices to well below the cost of production.

Milk processors want you

International demand and expansion in local processing facilities has fuelled renewed competition between Australian processors for southern milk supply.

Scramble for precious water in WA

SOME 2200 megalitres of water might seem only a drop in the ocean for flood weary farmers in northern and eastern Australia but in the drought-stricken west every bit of a new allocation will be precious.

Progression plan a work in progress

Unfortunately, many families can't broach the topic of succession planning at the kitchen table, so it was refreshing to hear WA farmer Peter Evans discussing his family's approach in front of 200 people.

Floods bring New Year chaos to northern dairy industry

THE QUEENSLAND dairy industry is starting 2011 in chaos, swamped by New Year floods engulfing the State.The big wet which drenched Central Queensland in December moved to the southeast corner of the State with devastating impact in the second week of January.

PRIME MINISTER Julia Gillard is deliberately misleading Australians by claiming she wants to keep the Murray-Darling reform process on time, according to Coalition Murray-Darling Basin spokesman Senator Simon Birmingham.

 

MURRAY GOULBURN has taken up all of its rights in takeover target Warrnambool Cheese & Butter Factory’s (WCBF) $48 million entitlement offer.

 

THE HEAD of one of the world’s largest dairy cooperative wants the industry to do more to promote the goodness of dairy.

MURRAY GOULBURN has increased its prices by 35c/kg for protein and 14c/kg for butterfat – or $5.25/kg for milksolids – backdated to July 1.

ALTHOUGH AREAS of northern Victoria may remain under water for months, the amount of damage wreaked by the state’s floods is slowly being assessed.

Leave a comment

Make sure you enter the (*) required information where indicated.\nBasic HTML code is allowed.

» Get social

When butter and chocolate collide

TWO New Zealand companies Lewis Road Creamery and Whittakers have teamed up to deliver what must be every dairy lover’s dream: chocolate butter.

Milking it - Ice cream for dogs

EFFORTS to extend the market for dairy know no bounds, with an American company The Bear and The Rat, creating a yoghurt-based ice cream for dogs.