Fonterra has hiked its forecast farm-gate milk price to a
record $8.65 per kg of milk solids, with the 35c increase
equating to an increase in dairy incomes of about $600
It means a forecast cash payout of farmers of $8.75 for the
2013-14 season, with the previously announced estimated
dividend of 10c a share.
The higher forecast reflected continuing strong global demand
for milk powders, Fonterra chairman John Wilson said.
The announcement was welcomed by Federated Farmers dairy
chairman Willy Leferink, who said the forecast, if it stuck,
represented ''good times'' for all New Zealanders.
In 2010, the New Zealand Institute of Economic Research said
a $1kg rise in Fonterra's payout made every New Zealander
nearly $300 better off.
''Given this latest ... uplift, every New Zealander could be
$100 better off as a result of what we do,'' he said.
However, Mr Leferink also sounded a note of caution, advising
car dealers or rural agents not to rub their hands ''just
In the three months to January, the Real Estate Institute of
New Zealand's dairy farm price index fell by 2.9%.
In a key area such as Canterbury, the REINZ noted the dairy
farm market had plateaued and demand for very good properties
was being driven mainly by local buyers.
''It tells me there's a realisation that forecasts are just
that and in the case of the North Island, a great 2013-14 is
needed to make up for a lousy 2012-13 drought-affected
''The climb of dairy commodities behind this revised forecast
can be traced to less than optimal conditions facing our
''That's why I am confident farmers are on conservative
budgets and, if it does stick, then they will prioritise debt
retirement and productive investment, especially on
environmental works,'' he said.
ASB rural economist Nathan Penny said the lift in dairy
incomes would be a key engine of growth over 2014, along with
the Christchurch rebuild and the accompanying general
broadening in growth.
Combined with an expected 10% increase in production compared
with last season, dairy incomes were set for a $5 billion
boost from the drought-hit 2013 season.
While there were reports emerging of dry patches,
particularly in the Waikato, he expected the boost to further
encourage farmers to keep production high for as long as
Mr Penny expected the high dairy prices to spill over into
Forsyth Barr broker Andrew Rooney said the forecast lift was
good news for farmers, albeit the actual forecast price
remained 70c lower than the theoretical price of $9.35.
In December, Fonterra unexpectedly left its forecast milk
price unchanged at $8.30 and slashed its dividend by 22c to
10c, due to the disparity between very high milk powder
prices, and those for cheese and casein.
That forecast was 70c per kg of milk solids below the
farm-gate milk price that had been calculated in accordance
with the milk price manual, and Fonterra was maintaining that
position with this week's forecast.
The board had the discretion to pay a lower farm-gate milk
price than specified under the manual, if it was in the best
interests of the co-operative.
Looking ahead, Westpac maintained its view that increasing
global milk production, particularly in the northern
hemisphere, would weigh on dairy prices from mid-2014.
The bank's forecast was for the milk price to fall next
season to $7.10, senior economist Anne Boniface said.
There was a noticeable market reaction to the announcement
yesterday, with the NZD/USD rising 0.3c and two-year swap
rates up one basis point, she said.
Fonterra's board also approved an increase in the advance
rate schedule of monthly payments to farmer shareholders.