1 Aug 2016

Fonterra holds forecast payout at $4.25

12:51 pm on 1 August 2016

Dairy co-operative Fonterra has held its forecast payout to farmers steady.

Fonterra building in the Waikato

Photo: RNZ / Claire Eastham-Farrelly

It has kept the farm-gate price for the new 2016-17 season at $4.25 per kilogram of milk solids - the initial price it set in May. With earnings per share of 50 to 60 cents on top of that, the total payout ranges from $4.75 to $4.85.

Fonterra chairman John Wilson said maintaining the farm-gate price reflected continuing uncertainty with the high New Zealand dollar.

"The co-operative is aware of how tough the situation on farm remains ... this forecast is our best estimate at this early stage of the season.

"We will continue to update our farmers as we move through the season," he said.

Mr Wilson said Fonterra expected global milk supply and demand to come back into balance over the season.

"Farmers globally are producing less milk in response to lower prices and we are forecasting a three percent reduction in our New Zealand milk collection for this season."

But at $4.25 per kilogram, the forecast is still below a break-even range for farmers, who need $5 or more.

Some analysts are predicting the payout to rise; ASB Bank is forecasting $6 by the end of the season.

ANZ rural economist Con Williams said cash flow was the important factor and today's announcement would have little effect on revenue.

"Small variations in forecast numbers at this time of the year don't tend to alter the revenue side of these too much.

"Today's update will see these largely unchanged on what farmers had budgeted earlier in the year.

"These were set fairly conservatively at the time around $4.30 a kilo of milk solids for a fully shared Fonterra farmer."

Mr Williams said farmers had been cutting costs, and many budgets were showing reductions of $1.00-$1.25 per kilogram of milk solids in operating costs.

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