Northland will see extra $22.5 million under new milk forecast

Northland dairy farmers are still cautious of the volatile international market despite a lift in the forecast milk price of $6.75/kgMS. PHOTO/JOHN STONE

Another lift in the forecast milk price for next year will generate an additional $22.5 million into Northland's economy but the region's dairy farmers aren't celebrating yet.

Fonterra this week increased the forecast price by 25 cents to $6.75 per kilogram of milk solids which the company said reflected the ongoing rebalancing of supply and demand in global dairy markets.

If the final payout for next season announced at the end of the year is $6.75/kgMS, Northland dairy farmers will receive $607.5m based on the 90 million kg of milk solids they supply to Fonterra each year.

A payout of $6.50/kgMS will rake in $585m.

Federated Farmers of New Zealand Northland dairy chairman, Ashley Cullen, said the latest forecast payout figure looked good on paper until it was paid out.

"Just because they announced it doesn't mean farmers will get it. The market is still pretty volatile out there and farmers should continue to be mindful of their budget," he said.

"Aside from loans with commercial banks, farmers also have Fonterra loan to pay back and anything above $6 goes into that repayment and I don't know anyone who didn't take that loan to keep going in the last two years."

But Mr Cullen said the final forecast price was not likely to fall too much from current predictions, saying it was highly likely to be above $6.

"The writing's on the wall for this to be a good season pay wise but we still have to err on the side of caution."

He said dairy farmers in Northland endured a wet start to the season which hampered grass growth and damaged pasture.

Fonterra chairman John Wilson said the increased forecast price would be welcome news to farmers.

"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 although following a challenging period of very wet conditions for some of our farmers," he said.

Company chief executive Theo Spierings said an increasing number of consumers in Fonterra's global markets preferred dairy for their everyday source of nutrition which was converting into strong demand, particularly in consumer and food service products.

The forecast price hit $6/kgMS in November last year .