27 Jul 2017

Fonterra lifts forecast milk price for farmers

1:08 pm on 27 July 2017

Dairy giant Fonterra has lifted its opening forecast payout for this season by 25 cents to $6.75/kg milk solids.

Fonterra milk truck

Photo: RNZ / Rebekah Parsons-King

With forecast earnings per share of 45 to 55 cents on top of that, the total payout would be the best since the 2013/14 season.

In May, the dairy co-operative had forecast a payout of $6.50/kg for the 2017/18 season.

On average, many farmers are able to break even at $5/kg or more.

Fonterra chairman John Wilson said the lift reflected the ongoing rebalancing of supply and demand in global dairy markets.

"We are seeing growing confidence on-farm across the country and, with global demand for dairy strengthening, the signs are for a good start to the season for our farmers and their rural communities," he said.

He acknowledged this would follow a "challenging period of very wet conditions" for some farmers.

While the increase was good news, farmers would still need to budget carefully, he warned.

BNZ senior economist Doug Steel said the lift to $6.75 would result in a big economic boost.

"We'd estimate (it) is around about $500 million more into the New Zealand dairy industry and therefore into the economy," he said.

Mr Steel expected farmers to focus on paying down debt and investing in their dairy farms.