8 Mar 2012

High dollar tipped to affect Fonterra payout

6:05 am on 8 March 2012

An economist says the state of the global economy and China's reduced growth forecasts could affect Fonterra's payout to farmers.

The dairy cooperative's Global Dairy Trade-Weighted Price Index fell 0.9% on Wednesday, to an average selling price of $US3576 a metric tonne.

It is the third consecutive fall.

In December, Fonterra lifted its forecast payout to between $6.90 and $7 a kilogram of milk solids for the current season, citing a modest improvement in dairy product prices at auction.

ANZ-National Bank rural economist Con Williams says the sluggish global market and high New Zealand dollar could affect that payout.

He says the bigger downside for the payout in 2011 and 2012 is how strong the New Zealand dollar has been over the last few months during the peak of production and also probably the peak of sales.

Mr Williams says Fonterra will have forward hedging in place and that will provide some buffer, but the high New Zealand dollar during that period will provide a downside.

He says China, a key bellwether for demand, has come out with a softer GDP target for the next 12 months or so.

Mr Williams says if dividends are added to the forecast payout, the price would be between $6.80 and $6.90 a kilogram of milk solids.