A slight fall in the forecast milk payout will slash nearly $5m from the earnings of Northland dairy farmers. Dairy giant Fonterra on Friday revised its forecast price to $6.70 per kg of milk solids— down from $6.75 announced in May with the final payout amount due to be revealed in September.
There’s likely to be no further dividend payment to shareholders over the 10 cents distributed earlier in the year as Fonterra moves to retain more of its earnings after payment to Danone and the impairment of the co-operative’s Beingmate investment.
In March, Fonterra posted a first-half net loss of $348 million due to a $405m write down of its 18.8 per cent investment in Chinese infant milk formula company Beingmate and a $183m settlement with Danone following their dispute over the 2013 whey protein recall.
Federated Farmers Northland dairy chairman Ashley Cullen said, apart from a reduced forecast payout, of concern also was Fonterra’s decision this week to halt trading on the New Zealand and Australia stock exchange as it reviewed its earnings forecasts.
The Kiwi dollar’s descent overnight [on Thursday] to a more than two-year low was another concern, he said.
On Friday the New Zealand Dollar was buying US66 cents, the lowest point since March 2016.
Northland’s 1030 dairy farms supply about 90 million kg/MS each year .
For a farmer with the average milking herd size of 300 – each producing 320kg/MS, the “loss” in earnings from the revised payout would amount to $4500 or $4.6m for all farms in Northland.
Ashley Cullen said a loss of 5 cents per kilo of milk solids would mean a lot for
Cullen milks 220 cows and supply 53,000kg/MS each year and he will lose $2650 based on a payout of $6.70.
“The loss in revenue could have been money spent on farm compliance or gone to businesses farmers rely on. My gut feeling is the final payout will be around $6.70, which will still be a good amount.
“Five cents is neither here nor there. It could have been worse, considering Fonterra’s trading halt and the milk prices on the international dairy auction lately,” Cullen said.
Financial analysts are predicting the milk payout price will drop to $6.50kg/MS after a 9 per cent fall in global dairy auction (GDT) prices in recent months.
Fonterra chairman John Monaghan said higher milk prices, which was good for farmers, have put pressure on company earnings, and on its balance sheet.
“You never want to have to reduce the milk price at the season’s end, but it is the right thing to do and $6.70 remains a strong milk price.
“Maintaining a strong balance sheet has helped us to support farmers during tough seasons through our Co-operative Support Loan and being able to bring forward the
Advance Rate Schedule and get money to farmers earlier in the season.”
The co-operative’s full year results will be announced on September 13.