Waikato farmer Guy Kalma is just one of hundreds disappointed in Fonterra’s reduced dairy payout.
The average dairy farmer will be $150,000 worse off in the 2015-16 season compared to this season, according to Dairy New Zealand.
DairyNZ chief executive Tim Mackle said the industry body would be ramping up its support to farmers, following Fonterra’s announcement of the opening forecast farmgate milk price of $5.25 per kilogram of milk solids.
“By our calculations, this forecast will translate into an average farmer’s milk income dropping by $150,000 for this next season. We’ve worked out that the break even milk price for the average farmer now going forward is $5.70 kg/ms, yet under this forecast scenario they’ll only be receiving $4.75 all up in terms of farm income including retro payments from last season and dividends,” Mackle said.
“This will be the lowest milk payment farmers will get until Christmas since 2006-07. We’ll particularly need to support those farmers who have just bought farms or who are first year sharemilkers as they will have more debt to manage. Lower order sharemilkers are also under immense pressure as they have little wriggle room.”
A predicted fall in the value of the New Zealand dollar could offer dairy farmers some respite, according to Fonterra chief financial officer Lukas Paravicini, who said the dollar was over-valued and he expected it to lose value “over time”.
“The milk price is very sensitive to the dollar. As a rule of thumb every rise or fall by a cent has a 10 cent impact on the milk price,” Paravicini said.
The underlying fundamentals of the dairy industry were strong, and demand would continue to rise. He said some recent data out of China relating to demand looked promising, as well as from south-east Asia.
The rise in the farm payout to $5.25 for the 2015-16 season reflected the expected rise in Chinese demand.
“But there’s not a lot of data about China. In most markets it’s easy to get transparency of all the food supply chain, but the size and complexity of China doesn’t make it easy,” Paravicini said.
He echoed comments made by Westland Milk Products chief executive Rod Quin that Chinese whole milk powder buyers were expected to return in early 2016.
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Latest analysis by the United States Department of Agriculture shows that China will import 30 per cent less milk powder in 2015 than in 2014.
Quin said the industry was wrestling with three unsettling factors: the effect on prices from ongoing sanctions against Russia, the removal of EU milk quotas after 30 years and lower demand from China.
Paravicini said he expected supply to fall in response to the low milk prices.
In response to criticism that Fonterra was not transparent enough in its price reporting, and should provide guidance monthly through the season, Paravicini said market volatility made it difficult to forecast.
“We have a big interest in the market being informed and transparent, and for that purpose we publish our global dairy update, so ultimately the milk price is an outcome of multiple factors.
“We have to be cautious though – we won’t get a better indication by publishing a milk price every month because of the volatility. As soon as we have relevant information we will publish it,” Paravicini said.
Fonterra would continue to follow its strategy of producing paediatric base and ensuring more and more of its milk was used in downstream processing.
Source: Stuff
