60c less per kilo = $714m less for NZ

Fonterra’s revised forecast payout has been reduced by 60 cents to $6.00a kilo.

That’s a reduction in expected income of about $120,000 for the average dairy farm and a loss of $714m for the New Zealand economy.

Fonterra Chairman, Henry van der Heyden said today that declining prices across all commodities, including dairy, had been exacerbated in recent weeks by the global financial crisis.

“There is a great deal of uncertainty around the world, industry and trade activity is slowing down and all the forecasts are pointing to a global recession. We have seen a real tightening in consumer spending and dairy is not immune to this rapid deterioration in the global economy.”

We have kept conditions under close review and brought forward our forecast revision so farmers know exactly where they stand as they work through their budgets for next year. The message is for farmers to be cautious in their planning.”

Company chief executive Andrew Ferrier said, given current conditions, demand was unlikely to recover by mid-2009 as initially expected.

“While the medium to long term outlook for dairy remains positive the financial crisis has driven commodity prices down further and, with consumer confidence deteriorating, it is likely that prices will remain weak, rather than recover, through our fiscal year.”

Ferrier said that as the world economy retreated, commodity stocks were building and these would need to be cleared before prices improved.

“The market has not yet absorbed the surplus stocks from the US. In addition, stocks in the EU are building. This combination of excess stocks and weak demand has driven prices down rapidly. A rebalancing of the market is unlikely in the short term,” he said.

A couple of seasons ago this payout would have been greeted with excitement and it’s still above the long term average, but after last year’s $7.90 payout and the earlier forecast for this season of $6.60 it’s disappointing.

It’s only a few months since Jeanette Fitszimons was asking Fonterra to subsidise consumers because of steep rises in the price of dairy products on the domestic market. I doubt she’ll be suggesting consumers subsidise the company now the price it receives is falling.

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