Fonterra news eases the pain

John Bluett says farmers will probably reduce debt and consolidate with the better payout. Photo / Christine Cornege

Like many of his mates, Waikato dairy farmer John Bluett breathed a sigh of relief when Fonterra announced the new season's opening forecast payout yesterday.

In the 2007 to 2008 season, production on his two Te Pahu farms, west of Hamilton, was down 17 per cent because of the region's worst drought in more than 100 years.

There were more hard times for the dairy farmer of three decades when the region's second big dry in three years struck this season.

This was followed by a plague of black beetles that chewed through his pastures, forcing him to dry off his herds a few weeks earlier than normal.

So when Fonterra announced its opening forecast payout for the 2011 season of $7.10, comprising a milk price of $6.60/kg milksolids - up 50c on the forecast for the present season - and a dividend of up to 50c for each share, Mr Bluett was "pretty happy".

"They were pretty tough times the last three years so from a farmer's perspective this is probably quite a good confidence boost, it's good news psychologically," he said.

"If things stay normal and we don't have another drought or more bloody insects this could be our most profitable season yet."

Mr Bluett would not say what his level of debt was but said he had spent an extra $70,000 on maize silage last season and $250,000 on capital projects - including a feed bunker and an underpass for his cattle two years ago.

He said the payout would help younger farmers with high mortgages who had bought land and cows at higher prices a couple of years ago.

"The financial pressure should be off for those who have high mortgages and now guys will get their seasonal servicing under control, some will even be able to pay off debt to get themselves into stronger positions. But for us the next step will be to consolidate, and I think that is where a lot of guys will see their money going to."

Fonterra chairman Sir Henry van der Heyden said the forecast represented an increase of 50c/kg on the forecast milk price for the 2010 season just ending, but directors will calculate an updated forecast in late July.