Northland dairy farmers are poised to earn a record $787 million if Fonterra's maximum opening forecast milk price for next season comes to fruition.
The dairy giant has determined the opening forecast farmgate milk price for the 2021/22 season of between $7.25 and $8.75 per kilogram of milk solids on the back of an improved global economy and strong demand for dairy.
It also narrowed its 2020/21 forecast price range by 5 cents to $7.55 per kgMS. The final price for this season will be announced around October.
Based on the roughly 90 million kilograms of milk solids Northland dairy farmers supply to Fonterra each year, a payout of $8.75 per kgMS will earn them $787.5m.
The highest milk payout they received from Fonterra to date was $8.50 per kgMS for the 2013/14 season which was worth $765m.
Federated Farmers Northland acting dairy chairman Matt Long said a payout at the top range of the forecast price would boost the morale of farmers who have experienced increased compliance costs recently in just about every aspect of their businesses.
"It will be a very good payout, although there's a lot of water to go under the bridge before the final payment is announced. Drought for couple of years in New Zealand reduced milk production which may have seen prices for dairy products internationally go up.
"The demand out of China has helped us in a lot of ways and also farmers have had to spend a lot recently given the dry weather so a good payout will help offset those costs," Long said.
Okaihau dairy farmer Terence Brocx advised caution on the opening forecast price as a number of factors could affect the final payout.
"It wouldn't be the first time a prediction is made and it's $2 out. Money is not in the bank until it's in the bank. However, the country needs to celebrate because for every dollar Fonterra brings into the country, farmers get 15 to 20 cents."
New Zealand's dairy sector was fortunate, he said, that there was a strong supply chain and demand for the quality products it made unlike Europe, United States, and Australia which have challenges shifting products globally.
"The opening forecast price shows dairy farming is profitable and the money earned helps mitigate drought and production costs. We are making a profit out of people overseas ... it is just so good for New Zealand," Brocx said.
Fonterra chief executive Miles Hurrell said global demand for dairy, especially New Zealand dairy, continued to grow with China leading the charge as its economy continued to recover strongly.
Prompted by Covid-19, he said people were seeking the health benefits of milk and customers were wanting to secure their supply of New Zealand dairy products and ingredients.
"Growth in global milk supply seems muted and the global supply of whole milk powder is looking constrained.
"Based on these supply and demand dynamics, along with where the NZ dollar is sitting relative to the US dollar, we're expecting whole milk prices to remain at current levels for the near future."
However, Hurrell said some of the major risks included Covid, the impacts of governments winding back their economic stimulus packages, foreign exchange volatility, changes in the supply and demand patterns that could enter dairy markets when prices were high, and potential impacts of any geopolitical issues around the world.