Dairy market volatility prompted Fonterra to announce a decrease in its forecast payout for the 2017/18 season by 35 cents to $6.40 per kilogram of milk solids. The dairy giant had earlier announced a forecast price of $6.75 per kgMS.
Despite demand for dairy remaining strong, particularly in China and other parts of Asia and Latin America, Fonterra said strong production in Europe and continued high levels of EU intervention and stockpiles of skim milk powder has lowered prices.
Northland dairy farmers supply 90 million kg of milk solids each year to Fonterra.
They say a drop of 35 cents will hit them hard.
Northland Rural Support Trust co-ordinator Julie Jonker said the recent fall in global dairy milk prices came on the back of decent payouts in the last couple of years.
“The payout they’ve been getting this year is allowing them to do maintenance and paying off their debt which they couldn’t do in 2015 because of the low milk prices and the year before due to floods and the drought in 2013.
“The reduced payout has certainly tested the resilience and adaptability of farmers and farmers are remarkably adaptable,” she said.
Mata dairy farmer Logan Hewlett said a drop of 35 cents per kg of milk solids was “huge”.
“With all the uncertainty about prices globally, I think they are here for the long term. Farmers are still struggling from a couple of years of low payout,” he said.
Federated Farmers Northland dairy chairman Ashley Cullen said the latest forecast price was not surprising given that global dairy prices have been on a downward trend in the last two months.
“It’s a disappointment but it’s the reality. Anything over $6 is good but we’ve got to be realistic and with the global dairy prices coming down, something had to give.”
If the revised milk price holds, the 35c equates to lost income of $647.8 million for dairy farmers throughout the country based on DairyNZ production figures of 1.85 billion kg of milk solids collected for the 2016/17 milking season.
Fonterra chairman John Wilson said the co-operative’s strong financial position, good customer orders and buoyant demand has allowed the board to increase payments to farmers in January by 10c/kg and it planned to hold the advance rate through to May.
“In effect, farmers will receive equal or higher payments for their milk over this period than were scheduled under the previous $6.75/kg MS milk price.”
This cut will come through the retrospective payments paid to farmers from June to October in the 2018/19 milking season rather than over the coming months.