Uplift in revised milk forecast price to delights Northland dairy farmers

Tangiteroria dairy farmer Dave Robinson hopes the final milk price is $6 or more per kg of milk solids. Photo / John Stone

A lift in the forecast milk price has delighted Northland dairy farmers who are cautiously optimistic the final payout stays above $6 per kilogram of milk solids.

Fonterra yesterday increased its 2019/20 forecast farmgate milk price from $6.25 to $7.25 per kgMS to between $6.55 and $7.55 as the dairy giant has been achieving good prices so far this season.

Fonterra said its ability to see its whole milk powder at higher prices than European Union and United States dairy companies in Global Dairy Trade events, coupled with a decrease in global production, have helped the company's financial position.

If the final payout is $7.55, Northland dairy farmers - who supply about 90 million kg of milk solids to Fonterra each year - will earn $679.5 million.

Dave Robinson, a dairy farmer at Tangiteroria, 32km southwest of Whangārei, said the latest forecast was very positive but the market still remained pretty volatile.

"There are a lot of uncertainties that are out of our control, like Brexit and the [trade] war between China and the US, but there are positive signs as well."

Robinson said he possibly didn't expect an increase in the forecast price, given Fonterra's financial position of late.

Fonterra posted a net loss of $605m for the July year, slightly better than expected, on asset writedowns of $826m, mainly on its offshore businesses.

The writedowns included a $203m impairment of its China Farms investment and $237m on its New Zealand food service business.

Fonterra has increased the forecast farmgate milk price to between $6.55 and $7.55 per kg of milk solids. Photo / Michael Cunningham

Robinson said the writedowns mostly affected the dividend side of things rather than the milk payout which hasn't fared too badly.

"Steady payouts of between $6 and $7 will be good. It's hard to run a business and do budgets on fluctuating payouts but that's the nature of this business.

"If we end up getting a good milk payout, banks will be a lot happier, and farmers will have more ability to pay their debts off which is their biggest concern right now."

Robinson, who milks 400 cows, said a strong payout would also help cushion the effects of the many levies dairy farmers paid, including the cost of the Mycoplasma bovis (M. bovis) phased eradication programme.

Northland Rural Support Trust co-ordinator Julie Jonker said an increased payout has got to be good for a group of people who put in a lot of hard work..

Fonterra chief executive Miles Hurrell said a wide forecast price range has been retained due to a number of factors such as the global trade tensions and political instability in some of the key sales regions.

He said one of Fonterra's priorities was to support regional New Zealand and if one took the $7.05 mid-point of the revised forecast, it meant a further $450m in the regions.