An email from Fonterra chair John Wilson brings more bad news:
- Today we reduced the current forecast Farmgate Milk Price for the 2014/15 season to $4.40 per kgMS. Along with the previously announced dividend range of 20-30 cents per share, the change amounts to a forecast Cash Payout of $4.60 – $4.70 for a fully shared-up farmer.
- Today’s revision means there will also be a reduction to Advance Rate payments for August and September. . .
- The 10 cent reduction to the forecast reflects the reality that global commodity prices have not increased as expected.
- World markets are over-supplied with dairy commodities after farmers globally increased production in response to the very good prices paid 12-18 months ago. This supply imbalance has heightened due to continuing good growing conditions in most dairy producing regions. . .
This is unexpected and unwelcome but there is better news for next season:
- We have also announced today our opening forecast Farmgate Milk Price of $5.25 per kgMS for the 2015/16 season.
- The forecast Cash Payout will be available after we determine forecast earnings for the 2016 financial year, in July.
- The Advance Rate will begin at 70 per cent of the forecast Farmgate Milk Price, with an opening rate of $3.66 per kgMS. . .
- Our forecast takes into account factors including global milk production forecasts, the economic outlook of major dairy importers, current inventory levels and geopolitical events.
- Prices are expected to recover going forward, with a rebalancing of supply and demand over the season.
- However it is more difficult to say exactly when this recovery will lead to a sustained price improvement, and we recommend caution with your on-farm budgets at this early stage in the season.
Contractors are already finding farm work has dried up.
They and others who service and supply farmers will be sharing the pain until the payout picks up.