17 Jul 2015

Question mark over forecast milk payout

11:38 am on 17 July 2015

Commentators are questioning whether Fonterra will be able to hold its forecast milk payout for the current season, following a further big drop in prices at this week's global dairy trade auction.

Fonterra sign

Photo: 123RF

In response to the drop, agricultural analyst AgriHQ has dropped its farmgate milk price prediction to $4.22 a kilo of milk solids, down more than 80 cents on a fortnight ago.

Bank economists are also predicting a payout that will be well below the $5 mark.

Fonterra's board is expected to consider its $6.25 opening forecast when it meets again early next month.

Rural finance consultant Don Fraser said the continued dairy price decline was putting more pressure on Fonterra and its milk price forecast.

"At $5.25, I'm wondering whether Fonterra will be able to maintain that level of payout, because I understand they're fairly cash-strapped as well.

"Unless they're prepared to borrow to keep the payout high, then it's going to be very difficult."

Fonterra director general for co-operative affairs Miles Hurrell said its job cuts, announced yesterday, would result in payroll savings of up to $60 million.

The company said most of the job cuts it identified in its business review so far would be from within New Zealand and it was likely more would follow later this year.

The dairy co-operative is axing more than 520 jobs across its human resources, finance and information systems departments.

It employs 18,000 staff worldwide, but said most of the redundancies would be among its 11,500 New Zealand employees.

Mr Hurrell said a second phase of the business review would take place in August.

"It's not known for sure what will come out of phase two, but it's fair to say that the business does need to become leaner.

"As we get through that process, I wouldn't be surprised if we end up with some job cuts in phase two as well."

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