The latest rise in milk prices could line the pockets of lower North Island farmers by $23 million.
Fonterra confirmed the milk price per kilogram of milk solids was going up 15 cents to $6.55 on Wednesday.
This means the average farmer can expect about $20,000 extra a year.
Foxton sharemilker Richard McIntyre said the rise was great for dairy farmers, most of whom have weathered a hard season.
It was wet in spring, then dry through summer and milk production has been down about 2 per cent on the same period last year.
Fonterra chairman John Wilson said the lift in milk price to farmers was because of strong international prices.
“Farmers will welcome a forecast cash payout of $6.80-$6.90, which would be the third highest in the last decade.”
CB Norwood Distributors chief executive Tim Myers said the rise in the dairy payout helped add certainty to their positive sales forecasts.
“For us, it means being able to look down the next six to 12 months with a fair level of certainty wth interest from that particular segment of our customer base.”
He said it was a second good season after 2017 started a recovery from some lean years.
“It really quite a steep climb out of the trough for most agri-businesses. What we are contemplating in 2018 is a peaking off in terms of the cycle. We are staring down the barrel of what we think is quite a stable and positive outlook.”
Dairy customers formed about 50 per cent of their customer base, but he said other sectors like lamb, beef, viticulture and horticulture, particularly for kiwifruit, were also tracking strongly.
“We find ourselves in a situation where nearly every other segment is doing well also. That is quite unusual. Normally, you find that a couple of segments are up and one or two are down. But, in 2018, it looks as though every segment is up, which is obviously very good news.”
Federated Farmers Manawatū-Rangitīkei dairy chairman Murray Holdaway said the 15-cent rise was welcomed among dairy farmers, but they took a long-term view and there were things that worried them about Fonterra.
“They give us a 15 cents rise in milk price and at the same time, when it comes to the shares, they take away 10 cents ”
Fonterra, New Zealand’s largest company, posted a net $348 million loss for the six months to January 31, after writing down its investment in Chinese company Beingmate by $405m.
At the same time as the dairy giant lifted its farmgate forecast price, it revised its forecasted earnings per share range of 25-35c, down from 35-45c.
Fonterra said although it expected prices to stay around current levels, it would be watching for any impact on the market from Europe’s production.
“While we appreciate the substantial opportunity and privilege of our business in China, our shareholders and unitholders will be rightfully disappointed with this outcome. Beingmate’s continued under-performance is unacceptable. The turnaround of the investment is a key priority for our senior management team,” said Wilson.
McIntyre said there will no doubt be plenty of questions over Fonterra’s performance, particularly around its Chinese investment decisions and the due diligence surrounding them.
In December, Fonterra paid $183m to Danone following the conclusion of an arbitration that arose from the WPC80 precautionary recall in 2013.
By: JILL GALLOWAY AND SHAUN EADE