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The forecasted drop in Fonterra's payout means Ferndale farmer Cameron McFadzien will have to stick strictly to his budget when completing a planned dairy conversion.
Fonterra revised its forecast payout on Wednesday to $5.10 per kilogram of milksolids for the 2008/09 season, down 90c from the previous forecast of $6.
The lowered forecast was driven by the continuing decline in international commodity prices coupled with the ongoing effects of the global financial crisis including significant fluctuations in the New Zealand dollar, Fonterra chairman Henry van der Heyden said.
Mr McFadzien and his wife Marion are converting 150ha of their 785ha property to dairy and the project is forecasted to cost about $2 million.
Mr McFadzien said the news of the revised payout was ‘‘disappointing'' and it meant the couple would have to ensure they did not have any budget over-runs.
‘‘We are going to have to keep the costs down and will have to make sure we buy good cows to keep the milk coming into the vats,'' Mr McFadzien said.
However, he said there were some positives among the bad news. The Official Cash Rate had been slashed yesterday from 5 per cent to 3.5 per cent and it appeared the price of cows would drop.
However, he believed the whole Eastern Southland community would feel the effects of the lowered forecasted payout.
‘‘It's not a good place to be in for the whole community,'' Mr McFadzien said.
Federated Farmers dairy chairman Lachlan McKenzie said the lowered payout would be ‘‘tough but manageable for well-run farm businesses''.
‘‘This [the lowered forecast] comes at a time when there is a glimmer of light appearing at the end of the tunnel for other commodities and the revised payout is still the thirdbest payout this decade.
‘‘While the revised payout will be tough on some farm businesses, the majority are well managed and moderately geared. The fundamentals for dairy remain extremely good so while this revision is disappointing, it is not a calamity,'' Mr McKenzie said.
Fonterra also announced a change to the timing for payment of the value-return component of the payout. Normally this is paid in two instalments in April and October, but the April 2009 payment will be deferred and it is anticipated a single payment will be made in October once the annual payout is finalised.
‘‘The devil for supplier shareholders comes with them effectively bankrolling Fonterra for some five months in the case of the advance payout, and six months for the value-return component,'' Mr McKenzie said.
‘‘Given the current forecast for this component, a large chunk of the half billion dollars farmers would have budgeted for in April has now gone.
‘‘The second unpleasant surprise comes with the incremental payouts being delayed until the end of the season in June,'' he said.
Each month, dairy farmers receive a baseline payout of $4.05 per kg/milksolids with an increment on top, he said.
Edendale dairy farmer Geoff Heaps endorsed Federated Farmers' comments, saying ‘‘some months in the winter we will only be getting enough [money] to feed the cat''.