Record dairy payout awaits Northland farmers

Fonterra has lifted its forecast farmgate milk price that could pump more than $800m into Northland's economy. Photo / Supplied

A record dairy payout is in store for Northland dairy farmers that will pump more than $800 million into the region's economy.

Dairy giant Fonterra has lifted its 2021/22 forecast farmgate milk price to between $8.90 and $9.50 per kilogram of milk solids— up from $8.40 to $9 kg/MS earlier announced.

If Northland dairy farmers get paid the minimum of $8.90 kg/MS as the final payout, they will earn $801 based on about 90m cu m of milk solids the region's dairy farmers supply to Fonterra each year.

A maximum payout of $9.50 will rake in $855m.

The highest milk payout they have received from Fonterra was $8.50 per kg/MS for the 2013/14 season, which was worth $765m.

Economist Brad Olsen, from Infometrics, said a record payout would be a great shot in the arm, not only for farmers, but Northland's economy as a whole especially during the global pandemic.

"The primary sector is a key part of Northland's economy and dairy plays an important role. The other factor that's causing dairy price increases is costs farmers have been wearing like feed and the profits they've been making have been limited by an increase in costs.

At the end of last year, Olsen said feed costs globally went up 43 per cent compared with the same time an year ago.

He said the dairy payout would keep Northland's economy going at a time when other sectors like hospitality and forestry were doing it tough.

"Also, the world demand for food is sustained through good dairy payouts. In Northland, there's a dairy factory (at Kauri) which adds to New Zealand's export potential as well as create employment," he said.

Together with dairy, Olsen said other primary sectors in Northland like meat and peanuts were doing well at this time.

Fonterra CEO Miles Hurrell said an increase in the forecast price was the result of consistent demand for dairy at a time of constrained global milk supply.

"In general, demand globally remains strong – although, we are seeing this vary across our geographic spread. Overall, global milk supply growth is forecast to track below average levels, with European milk production growth down on last year and US milk growth slowing due to high feed costs.

"It's a similar supply picture in New Zealand. Earlier this month we reduced our forecast milk collections for 2021/22 from 1,525 million kgMS to 1,500 million kgMS due to varied weather and challenging growing conditions.

"While the higher forecast farmgate milk price does put pressure on our margins in our consumer and food service businesses, prices in our ingredients business are favourable for milk price and earnings at this stage. As a result, we remain comfortable with our
current 2021/22 earnings guidance of 25-35 cents per share."

Hurrell said there were a number of factors Fonterra was keeping a close eye on, including growing inflationary pressures impacting on operational costs, the increased potential for volatility as a result of high dairy prices and economic disruptions from Covid, particularly as governments respond to the rapid spread of the Omicron variant.