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The chairman of the world’s largest dairy exporter Fonterra has said the latest announcement of a forecast payout milk price of $4.25/kg milk solids (19.40c/litre) for the new season is “tough but that’s the reality of what we are seeing in the global dairy market at the moment”.
John Wilson was speaking on a radio show hosted by the website The Country in New Zealand.
The price is below the prediction of analysts last week of $4.43/kg MS (20.21c/l) to as high as $6/kg MS (27.38c/l) before the end of the season.
John Wilson also said he expects the co-op’s forecast earnings per share to show “continuing strong results from Fonterra over the coming years”.
"We still think it’s going to be a bit of a rocky road yet," Wilson said. “The pleasing news is that we are seeing milk supply growth around the world starting to come back quite dramatically now as farmers around the world are faced with these very low prices.”
This is the third year Fonterra will pay a milk price to its suppliers which is below the estimated $5.25/kg (23.95c/l) cost of production in New Zealand.
Wilson added that “an advanced rate is critical for our farmers to support their businesses over the next six to nine months and that cashflows in the co-op have been brought up slightly higher to our farmers than what they would normally be”.
“Normally, we would only by paying about 70% or sometimes slightly under that of our forecast, but by September or October we’ll be at 75% October paid November 80%, so that’s about $3.41 for our farmers, so we are doing what we can to keep the cash flowing into our rural communities.”
Exchange wise, Wilson said the co-op is in a better position than a year ago, but that the New Zealand dollar is “stubbornly high at 67c” compared with the US dollar.
“Whenever the global dairy prices have dropped to these sort of levels, the New Zealand dollar has been at that 50c to 55c level, so that alone is about a $1.50 difference based on history, which is why, for our farmers, this dairy payout is so low at the moment for such a long period of time.”
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