Strong world dairy prices have seen New Zealand dairy giant, Fonterra lift its forecast milk price to $NZ6.15 per kilogram of milksolids (MS) as global prices continue to edge higher.
The higher price is in contrast to the situation in Australia where many dairy farmers face no change, or even weaker prices.
Contrast the upgrade from Fonterra against the cuts announced a few weeks ago by Murray Goulburn, and the closing of two factories and sacking of 350 people – all to keep faith with dairy farmers and forgive $150 million in loans and advance payments.
After two tough years, the Kiwi dairy industry sees to be recovering far more rapidly than the Australian industry.
This will be good news for the country’s economy, for the government which faces in election in September and for the four major Australian banks who have billions of dollars in loans extended to the dairy industry.
Those loans are looking more secure as Fonterra has followed the rebound in global dairy prices
Fonterra forecast a price of $NZ6.50/kg MS for the new season, while lifting its 2016-17 forecast by 15 cents.
“World dairy prices have risen in recent months and as we near the end of the season we have more visibility and certainty which makes us confident of our $NZ6.15 position,” Fonterra chairman John Wilson said in a statement.
Last week, there was a fifth consecutive rise in world dairy prices at the GlobalDairyTrade auction.
Fonterra also confirmed its earnings a share forecast range of 45 to 55 NZ cents and said it still targeted a full year dividend to shareholder farmers of 40c a share.
NZ economists estimated that Fonterra’s price hikes to farmers will inject nearly $US600 million into the economy over the next year, and lift the average dairy farmer income by $NZ80,000.
Since last year’s low final price of $NZ3.90, dairy income will soar by $NZ4.2 billion once this season’s final payout filters through to the dairy sector. Fonterra farmers contribute $NZ3.2 billion, with the remainder coming from other processors. But much of that extra money will return to Fonterra as loan repayments on loans Fonterra offered 18 months ago to help farmers ride out the slump.
Once the payout goes above $NZ6/KG MS, Fonterra withholds the extra. About 75% of farmers took out loans for a total value of $NZ373 million, according to Fonterra figures.
Mr Wilson said stronger production in March and April had partly offset lower peak production, meaning collections were now only expected to be down 3% for the season.
Last month, NZ’s second largest dairy company, Open Country Dairy, said its opening forecast for the new season was $NZ6.25-$NZ6.55/kg MS.
