North Otago Federated Farmers president Richard Strowger.
Photo by Sally Rae.
Dairy farmers have been again urged to "pull the belt
buckle in" after Fonterra sliced 30c from its previous forecast
range for the 2012-13 season to $5.65-$5.75.
The dairy co-operative has mostly blamed the continuing
strength of the New Zealand dollar for a lower farm-gate milk
price of $5.25 a kg of milk solids, down from $5.50, and a
lower forecast net profit after-tax range of 40c-50c, down
from 45c-55c a share.
It represented an estimated $500 million drop in revenue for
the New Zealand economy and followed Westland Milk Products'
70c/kgMS downwards revision to its season forecast payout,
which was now $5-$5.40.
While some recovery in global dairy prices was anticipated,
Fonterra did not know how strong that recovery would be or
when it would kick in and farmers were advised to continue to
plan cautiously, chief executive Theo Spierings said.
Yesterday's announcement did not come as a surprise, as some
economists had previously forecast as low as $5.50.
While it would be "tight, uncomfortable but not impossible",
for some farmers it could be "really break-even stuff, to
almost losing if they don't pull their horns in", North Otago
Federated Farmers president Richard Strowger said.
The global economy was fragile and it was going to continue
to be so and farmers were going to have to "pull the belt
buckle in" and look at their costs, Mr Strowger said.
While there had been improving prices in recent
GlobalDairyTrade trading events, the strength of the dollar
was eroding any gains, Fonterra chairman Sir Henry van der
Overall, the GDT trade-weighted index was up 4.1% across the
past four events, underpinned by a 7.8% rise on August 15.
However, prices were low compared with a year ago and the NZ
dollar remained strong against the US dollar.
Fonterra's consumer businesses were under pressure because of
unfavourable foreign exchange translation effects in many
markets, and a difficult retail environment affecting the
Australia-New Zealand business, chief executive Mr Spierings
There appeared to be some early signs of strengthening dairy
prices, partially driven by global weather events.
A serious drought in the United States was pushing up the
price of grain, which seemed to be affecting dairy production
and tightening supply.
Weather conditions in Europe, with extreme wet in the
northern regions of the continent and a heatwave in the
south, were also affecting grain production, while the Indian
summer monsoon was also off to a slow start, with rainfall
about 20% below normal, Mr Spierings said.
Federated Farmers dairy chairman Willy Leferink said most
farmers would have prepared two budgets based on a mid and
low $5 payout and farmers should now realign their lower-end
budgets down to $5.
It had been a "hell of a wet season" and, with calving still
in progress, farmers were under "immense pressure".
Those under financial stress needed to be "completely open"
with their bank manager and should also put their hand up if
they needed help.
"If you feel yourself overwhelmed, don't be stoic. Talk to
your family, your neighbours and to us at Federated Farmers,"
Mr Leferink said.
Fonterra Shareholders Council chairman Ian Brown said
farmers' resilience and early signs of a turnaround in
commodity prices should help soften the news.
At some stage, the "massive effort" farmers had been putting
in, the record volumes they had been producing and the
product they had been moving needed to positively affect the
payout, he said.