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Current as of 24/04/17 07:40PM NZST
Business news editor of the New Zealand Herald

Fonterra topping up the tankers

Fonterra's tankers will each be able to carry an extra 1000 litres of milk until the end of the year so they can handle a production boom. File photo / Sarah Ivey
Fonterra's tankers will each be able to carry an extra 1000 litres of milk until the end of the year so they can handle a production boom. File photo / Sarah Ivey

Fonterra's tankers will be able to collect an extra 1.2 million litres of milk a day for the next three months after the dairy giant was given permission to increase loading limits to handle bumper production.

The dairy co-operative's managing director for trade and operations, Gary Romano, said some of the best weather in years had resulted in a wave of milk arriving earlier than forecast.

Fonterra said this month that a good autumn and a reasonable winter throughout the country had resulted in record milk flows.

Daily collections were on average up more than 13 per cent on last year.

Government agencies had given the company permission to increase the operating weight of its tankers from 44 tonnes to 45 tonnes until the end of the year.

"A one tonne increase in our operating weight means every tanker can collect an additional 1000 litres of milk on every run," Romano said.

"With 450 tankers on the road during peak production, that's a big help."

Peak milk production is generally between October and December.

"The New Zealand Transport Agency has given us the permission to increase our operating weight which will help us pick up the extra volumes of milk and deliver a result that's good for the co-op and the New Zealand economy," Romano said.

BNZ economist Doug Steel said dairy made up about a quarter of all merchandise exports and production this season was expected to be up 5 per cent.

"With prices holding and the dip in the kiwi dollar helping things along in terms of New Zealand dollar prices, throw in a very good start to the season and cash flow dairy-wise should be still a strong support to the economy overall."

Fonterra is forecasting a payout before retentions for 2011/12 of $7.15 to $7.25 a kilogram of milk solids - including a farmgate milk price of $6.75 a kilo and a distributable profit of 40c to 50c a share - which with a 5 per cent rise in production could be worth about $10.2 billion.

But Steel said the weather last season needed to be borne in mind when looking at current daily increases.

"I think you want to be pretty careful to extrapolate that [daily rise] through the season given that last [year] September was a shocker, given the storms that hit the country at that time."

However, autumn production from February to May had been exceptionally strong.

This year a La Nina weather pattern was lurking in the background, and this could affect later production, Steel said.

La Nina tended to bring more rain to the north and northeast and less to the south and southwest.

Sometimes it could boost agriculture production, and the benefits to the east coast would outweigh damage to the west coast.

"But we are also very mindful that the 2008 La Nina is the one that caused all sorts of havoc [with drought] in the Waikato."

It was too soon to say whether the latest La Nina would affect national production.

"It still looks at this stage to be only a mild one, so that may even be a support."

* Fonterra's daily collection up 13 per cent on last year.
* Tankers can collect an extra 1.2 million litres a day.
* Economist predicts production will rise 5 per cent.
* Payout this season could be worth $10.2 billion.

- NZ Herald

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