Mixed response to milk price

Fonterra's increased forecast milk price will not be enough to make up for the effects of drought, particularly in the North Island, Federated Farmers says.

Dairy vice-chairman Andrew Hoggard praised the co-operative for increasing the milk price forecast from $5.50 to $5.80kg ms, saying with the dividend on top of that, it would make ''a bad end to the season slightly more bearable''.

But Mr Hoggard, who farms in the Manawatu, said it would be wrong to say the uplift in the forecast would get farmers ''out of the woods''.

''If I use my farm as an example, I would need an increase of 50c kg ms just to offset the drought,'' he said.

But if the forecast increase stuck, it could help many farmers facing ''massive costs'' associated with lost production, added feed costs and pasture repair, he said.

Westpac economist Nathan Penny said the increase in the farmgate milk price would mitigate the impact of the drought to some extent, although the regional variations in dairy-farmer incomes would still be large.

Dairy prices were the stand-out performer in the ASB commodity price index, which increased 3.7% in New Zealand dollar terms in the week ended March 22.

USD dairy prices surged 9.9%, with particularly large price increases in whole milk powder and skim milk powder.

The substantial recovery in prices of those products in recent GlobalDairyTrade auctions was now flowing through to wholesale dairy prices, ASB economist Christina Leung said.

With Fonterra's upwards revision of its forecast milk price payout, the bank saw the likelihood that next season's payout would be at a similar level as the drought affected prices received over part of that season.

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