The continuing decline in international dairy prices has forced the country's second biggest dairy co-operative, Westland Milk Products, to drop its milk payout forecast.
Photo: 123rf
Westland had been holding out with a forecast range of $5-$5.40 per kilo of milk solids.
Its chief executive, Rod Quin, said a $5.20 payout looked possible before the recent price falls in global dairy trade auctions, which it was blaming on aggressive undercutting by European producers.
Westland has now scaled back its predicted payout range to $4.90-$5.10 per kilo, which still leaves it sitting slightly above Fonterra's $4.70 forecast.
"Our payout's mainly based on skim milk powder and casein returns and they have for the most part of this season been slightly better than whole milk powder," he said.
"Some of our competitors have a different product mix which went against us last year and is working a bit more for us this year.
"But, that said, $4.90-$5.10 - these are low payouts and many, many farmers now will be struggling."
Mr Quin said - with Europe at its peak and New Zealand near the end of its season with stock still left to sell - the company did not expect to see a price recovery.
He said Westland's milk supply, from the West Coast and some Canterbury dairy farms, had been matching last season's supply but he was expecting a faster tail-off.
"We had a very good season last season; we were up 20 percent on milk. This year we're in line with that," he said.
"We think we'll see farmers saying, 'we'll dry off early this season and get our cows in very good condition heading into next season', expecting better returns.
"We have indicated that despite the current price decline, we are still seeing a $6 forecast at this point for next season, and so that will give some farmers more comfort that next season things may turn around."
Mr Quin said the high New Zealand dollar had also been putting pressure on returns.
However, he said the co-op was still aiming for a forecast milk payout of $6 for the new season, starting in June.
Mr Quin said the co-op's reliance on bulk milk powders would be reduced from next season as it increases production of higher value infant nutrition products.
"We're getting our 'drier seven' facility constructed at the moment. We expect to commission that in August-September and we'll be looking to turn that on in terms of infant formula production at that time," he said.
"So it will give us a further expansion of our value-added programme and we see that as adding to our payout year-on-year."
Mr Quin said Westland had also started construction of a new UHT (long life) liquid milk plant at Rolleston near Christchurch, which is due to come on stream in about a year, supplying the expanding UHT milk market in China.
