Kokopu dairy farmer Shayne O'Shea says the latest forecast price of $7.30 per kgMS is positive news in a volatile market. Photo / John Stone
Kokopu dairy farmer Shayne O'Shea says the latest forecast price of $7.30 per kgMS is positive news in a volatile market. Photo / John Stone
Northland dairy farmers are poised to earn $675 million if the latest forecast milk payout of $7.30 per kg of milk solids — the fourth highest payment ever — doesn't change.
Fonterra increased the forecast price by 25 cents to $7.30 per kgMS on the back of good prices forits milk, resulting in a strong start to 2020 for the dairy giant.
The forecast farmgate milk price range is between $7 and $7.60 per kgMS.
An extra 25 cents equates to an additional $22.5m.
Farmers say the price range is promising but are cautiously optimistic volatility in international dairy prices are kept to a minimum between now and the final payout, expected around October 2020.
Based on the roughly 90 million kg of milk solids Northland dairy farmers supply to Fonterra each year, they will earn $675m if the final payout price remains at $7.30.
However, Kokopu dairy farmer Shayne O'Shea said farmers couldn't count on any forecast price until the money was in their bank accounts.
"Volatility is the new norm in dairy. The latest forecast is positive news but anything can happen between now and the final payout around October next year."
O'Shea, who milks 395 cows on his Kokopu Rd farm, said dairy farmers would use the final payout towards debt reduction and compliance costs that were non-negotiable aspects of their work.
If the final payout stands at $7.30 per kgMS, Northland dairy farmers will earn $675 million for this season's milk supplies. Photo / John Stone
Purua dairy farmer and Fonterra Shareholders' Council mid-northern rep Dean Adams said factors such as a 5 per cent reduction in the Global Dairy Trade on Wednesday morning could change the final payout.
"While the latest forecast price is good news, I am not sure farmers will welcome it with quite the same enthusiasm and spending pattern as in the past.
"There's still a lot of overdraft-type debt recovery in the rural sector and also new costs around environment and compliance. The milk cooling rules have come into force this year so there's no discrete expenditure."
In the past, Fonterra required milk to be chilled over a much shorter period before it was collected but that timeframe has now increased.
Fonterra chairman John Monaghan said farmers would welcome what would be the fourth highest milk price in the company's history that would inject $11.2 billion cash in communities around New Zealand.
The higher forecast price reflected a global dairy market that was tipped slightly in favour of demand, he said.
"Our New Zealand milk production is forecast to be up 0.5 per cent on last year. Annual milk production in the other key global supply regions of the US and EU are both growing at less than 1 per cent.
"On the demand side, Global Dairy Trade prices have increased by about 6 per cent since our previous forecast. Whole milk powder prices, a key driver of our milk price, have hit their highest level since December 2016," Monaghan said.
The final payout for the 2017 season, paid in September last year, was $6.69 per kgMS plus a dividend of 10 cents per share that earned Northland dairy farmers $602m.
That payout came on the back of a net loss for Fonterra of $196m, prompting farmers to warn the company to improve its finances if decent payouts are to continue.
Part of the loss was as a result of a $232m payment to Danone relating to arbitration, and $439m writedown on Fonterra's Beingmate investment in China over a whey protein recall.
