Westland slashes forecast milk payout

Westland will decide on its final 2014/15 payout in September. Westland Milk Products, New Zealand's second-largest dairy co-operative, cut its forecast milk payout to farmers by 10c for the current season and by $1 for next season, in the face of sustained weakness in global dairy prices.

The Hokitika-based company will pay $4.80 to $4.90 per kilogram of milk solids for the 2014/15 season, with the final payout to be determined at the September board meeting, it said.

The forecast payout for the 2015/16 season was slashed to between $4.60 and $5/kgMS, from a previous band of $5.60 to $6/kgMS.

Prices for whole milk powder, the country's key commodity export, have plunged this year, and dropped an unexpectedly large 10.7 per cent in the GlobalDairyTrade auction this month.

Dairy prices are now expected to remain lower for longer than previously forecast, amid higher global supplies, weak demand in China and an import ban in Russia on European dairy products, which are being sold into other markets.

"Price volatility is at extreme levels with a fall of more than 20 per cent in one month, with prices in New Zealand dollars now lower than during the global financial crisis," said chairman Matt O'Regan.

"Demand from China remains soft and is unlikely to firm up before the end of this calendar year.

"The ongoing sanctions against Russia limit purchasing activity from this large global dairy importer, especially from Europe.

"This makes the milk oversupply even more of a problem for New Zealand exporters, as European competitors look more aggressively to the international market to sell."

Fonterra Co-operative Group, the world's largest dairy exporter, is expected to lower its forecast payout to farmers for this season following its board meeting next month. The Auckland-based company currently forecasts a payout of $5.25 per kilogram of milksolids for the 2015/16 season, from $4.40/kgMS last season and a record $8.40/kgMS the previous season.

Dairy NZ estimates $5.70/kgMS is the industry average breakeven point for most farmers.