Fonterra has confirmed the forecast payout for this season at $6.60 per kilo of milksolids and said the high dollar prevented an increase.
Farmers who are fully shared up will get an extra 25 to 35 cents per share.
This means an average farmer who is 100 per cent shared up to milksolids production is forecast to receive a total of $6.85-$6.95 per kgMS in cash payments for 2010/11, with the balance of Distributable Profit being retained by the Co-operative.
Fonterra Chairman Sir Henry van der Heyden said dairy market prices were holding up better than initially expected, leading the Board to contemplate an increase in the forecast Milk Price. However, the recent strength of the New Zealand dollar against the US dollar meant it was not prudent to increase the forecast at this time.
Increasing the advance payout from $4.30 to $4.60 a kilo will help cashflows over the next few months but the company warns the outlook is volatile.
Sir Henry commented, “When we issued the season’s opening forecast of $6.60 in late May, we indicated that then market prices could have suggested a much higher Milk Price – but that given volatile market conditions at that time we expected to see some softening in prices and we therefore forecast at a lower level. While market prices retreated sharply over the next few months before stabilising more recently, they have held up better than initially expected. However, we’ve also seen the New Zealand dollar strengthen significantly against the US dollar, eroding the value of dairy export returns for our farmers.
“We should remain cautious as there’s still uncertainty and volatility in global markets and we remain vulnerable to adverse movements in dairy prices or exchange rates which could hit the Milk Price. There is always potential for both downside and upside in the forecast, so I would encourage all farmers to continue to take a conservative approach in their farm budgeting.”
Those of us who’ve learned the lessons of the last few seasons are taking a very conservative approach to budgeting. It’s only a couple of seasons since the forecast payout dropped and we don’t want a repeat of the problems that caused.