By Mike Barrington and NZPA
Fonterra has raised its forecast payout for this season by 20c to $4.35kgMS and is predicting a payout of more than $5 next season.
But Farmers of New Zealand operations director Bill Guest, of Te Kopuru, was yesterday attributing the optimistic new dairy outlook to Affco plans to build a milk processing plant at Moerewa.
He recalled Fonterra chairman Henry van der Heyden telling Northland farmers in December last year they should not count on payouts higher than $4/kgMS when drawing up their business plans for the next 10 years.
Mr Guest said the prospect of low returns had dismayed dairy farmers. Forty-six dairy herds were for sale in Northland and 360 milking sheds north of Auckland had closed in the past three years.
"I don't believe Henry has suddenly had a vision enabling the payout to be lifted. Fonterra now needs loyalty. Dairy farmers owe a vote of thanks to (Affco owners) the Talley family for the competition they are injecting into the industry," Mr Guest said.
Explaining the 20c increase to $4.35kgMS, Mr van der Heyden said Fonterra was securing contracts at new record prices and was passing on the gains to farmers.
The revised forecast consists of the milk price component of $3.84 which has increased 14c and the value add component of 51c, which is up 6c.
Good prices would continue into the next season and early indications for 2007/08 were that the payout would be closer to $5 than $4, Mr van der Heyden said.
"We're now confident that if current exchange rates hold, next season's payout will have a $5 in front of it," he said. "However the downside of the high commodity prices is that our value add businesses will face a tough year next season.
"In the current season the high prices have only impacted on a small proportion of the year."
"Next year they are likely to impact on the whole 12 months and this will mean our value add component of payout (essentially profit) will be down in 2007/08."
Fonterra will announce its forecast for the 2007/08 payout on May 23 when it will also confirm the fair value share price for farmers for that season.
The world price of dairy products increased 11.8 percent in April, up 58 percent from where they stood a year earlier.
Behind the rise in global prices were restricted supply, including the Australian drought, growth in demand, and a change in product mix out of the European Union.