Open Country slashes dairy payout forecast

The decline is the first in five auctions Photo / Sarah Ivey

Open Country Dairy, New Zealand's second biggest milk processor after Fonterra, has revised its forecast down sharply in the wake of the last two very weak GlobalDairyTrade (GDT) auctions.

The company, which is 69 per cent owned by the unlisted food company, Talleys Group, now forecasts a farmgate milk price for 2015/6 of $3.65 - $3.95 per kg of milksolids, down from a previous forecast range of $4.70 to $4.90 a kg.

In a letter to suppliers, Open Country said that in its meetings with farmers it had consistently communicated the fact that there was "considerable downwards pressure on the 2015/16 milk price forecast" and that a revision downwards was inevitable. Prices at last week's GDT auction fell by 10.7 per cent, with the all-important wholemilk price dropping by 13.1 per cent.

"This takes the fall in whole milk powder over the past two auctions to 21 per cent with the obvious and extremely disappointing outcome that the full season forecast has fallen appreciably," Open Country said.

"The degree of negativity in this revision has resulted in us feeling obligated to communicate this outlook immediately rather than wait for the August Newsletter," it said.

"As we have regularly communicated, we will constantly update you on what we 'see' rather than what we "hope to see" and the schedules that follow reflect this."

The cash advance rates for August - October will be $3.00 a kg with November to January forecast at an initial $2.75.

See the recent moves in world dairy prices here:

Source: GDT

Open Country has plants at Waharoa in the Waikato, Wanganui, and Southland.

Fonterra's farmgate milk price is $5.25 a kg for 2015/6. The co-operative will reconsider its forecast at its next board meeting on August 7.

Economists expect a downward revision in Fonterra's farmgate milk price forecast in line with the sharp slide in dairy product prices since March.