Dairy has been New Zealand’s good economic news story but yesterday brought a double dose of and news.
Fonterra’s payout forecast was revised down and farmers in the North Island will have to dump milk after a gas leak shut down processing plants.
The revised payout forecast is for $6.70 to $6.80 for fully shared up farmers, 45 cents lower than the opening forecast made in May.
Fonterra Chairman Sir Henry van der Heyden said the lower Farmgate Milk Price forecast reflected a continued softness in commodity prices and a stronger New Zealand dollar.
“This softness of commodity prices has been reflected on Fonterra’s online trading platform Global Dairy Trade (GDT), which has experienced eight successive price falls – and one uptick – since May,” said Sir Henry.
Overall, the GDT-Trade Weighted Index is down 15.7% since May 3 when the opening forecast of $6.75 per kgMS was announced.
Coupled with ongoing foreign exchange volatility and overall global economic uncertainty, the Board had revised down the Fonterra Farmgate Milk Price forecast.
Sir Henry said the opening forecast had anticipated an initial softening of international dairy prices, followed by a recovery.
“We aren’t yet seeing the recovery of international dairy prices we initially anticipated and we are also dealing with a much stronger New Zealand dollar.
“Higher prices often lead to increased supply into global markets from our global competitors, as well as reduced demand. We are seeing this and it is impacting prices.”
The Board does its best to provide accurate forecasts to ensure farmers can adjust budgets where necessary.
This downwards revision is a reminder of the need to budget conservatively and confirms the wisdom of using last season’s record payout to decrease debt.
The announcement was followed by news that Fonterra will have to waste $20m of milk a day after a break in the Maui gas pipeline north of New Plymouth forced it to close 15 of its 17 processing sites in the upper North Island.
The news from Fonterra isn’t all bad, the season has started well.
Good weather has boosted pasture growth and contributed to record production in most of the country, although that will be cold comfort to those who have more milk to dump.