More than $22m loss for Northland dairy farmers as Fonterra slashes forecast milk price

A 25 cents reduction in milk payment means $22.5 million slashed from Northland dairy farmer's earnings. Photo / John Stone

Income for Northland dairy farmers will reduce by $22.5 million under Fonterra's revised forecast payout for next season.

The dairy giant revised its 2018/19 forecast farmgate milk price from $7 per kg/MS to $6.75 per kgMS this week in response to stronger milk supply from the world's key dairy producing countries.

Northland's 1030 dairy farms supply about 90 million kg/MS each year. A payout of $7 as earlier announced would have fetched them $630m but $6.75 per kg/MS would earn $607.5m— down $22.5m.

Federated Farmers Northland dairy chairman Ashley Cullen said $6.75 was still a good
payout for this year's milk supply but a lot could change in the volatile dairy market globally.

"Historically, it's still a good payout but the gloss has certainly been taken off. It's only a forecast at this stage," he said.

Fonterra chairman John Monaghan said the revised payout was in response to stronger milk supply signals coming from some of the world's key dairy producing regions.

"Over the past quarter, we have seen increased milk supply out of markets including Europe, the US and Argentina. These regions have a big influence on the supply and demand balance, and therefore global prices."

For example, he said the 1 per cent increase in US milk production represented just under 1 billion litres of extra milk.

"At the same time, demand for whole milk powder and dairy fats is showing signs of slowing in some parts of Asia, Africa and the Middle East."

Fonterra chief executive Miles Hurrell said the weakening NZD/USD exchange rate had only partially offset the decline in global dairy prices, and it was important to give farmers a realistic assessment of the market.

"It's still very early in the season and a lot can change over the coming months. A drop in the new season milk price forecast will be frustrating to our farmers, but it's important we give them the facts so they can make informed decisions in their farming businesses," he said.

Fonterra is required to review milk price every three months. The current forecast price for next season's milk supply is $6.75 and the final price is expected late next week.

In March, Fonterra posted a first-half net loss of $348m due to a $405m write down of its 18.8 per cent investment in Chinese infant milk formula company Beingmate and a $183m settlement with Danone after their dispute over the 2013 whey protein recall.