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Good times with a near record Fonterra payout, good forecast

28 May 2014

Good times with a near record Fonterra payout and a good forecast

Confirmation that the inflation adjusted milkprice payout for 2013/14 will be the second highest ever, at $8.40 per kilogram of Milk Solids (kg/MS), will see Fonterra Cooperative Group’s farmer shareholders cracking open the silver top. Meanwhile, a forecast 2014/15 payout of $7 kg/MS, is much higher than Federated Farmers anticipated.

“Yes this represents a haircut of 25 cents kg/MS, but a $8.40 kg/MS payout will be the second highest in Fonterra’s history,” says Willy Leferink, Federated Farmers Dairy chairperson.

“With a dividend of 10 cents kg/MS on top for this season, it takes the total payout when adjusted for inflation for a fully shared up farmer-shareholder to just one cent below the all time high, recorded in 2007/8.

“This 25 cent kg/MS haircut for the current season isn’t a surprise when GlobalDairyTrade auction prices have slid 22.6 percent since the early February peak.

“I bet if New Zealand’s major export were iPhones instead, there’d be commentators gnashing teeth over market share or whatever Samsung was up to. We need to be more mature that prices will fluctuate but you need to look at the wider picture.

“Right now, the world needs one and a half times what we produce every year just to stand still.

“In the year to April, the value of dairy exports surged 33 percent to be up an amazing $3.8 billion on the same point last year. Not only that but exports of caseins and caseinates have nudged aluminium out to become New Zealand’s number ten export.

“No where in the world are there ‘butter mountains’ like in the past. The global population is going up but global dairy production isn’t keeping pace. We will have bumper years like this one and pretty good years, like what’s forecast, so the trend line is positive.

“Next season’s (2014/15) milk price forecast of $7 kg/MS is actually much higher than Federated Farmers anticipated. It is a pleasant surprise you could say.

“If it sticks, it would rank as the fourth highest payout in Fonterra’s history. The upshot is that we are going from a near record payout to a pretty good forecast. Where’s the bad news in that? This payout and next season’s forecast is an economic bonanza.

“If there are two dark clouds one is a possible El Nino drought on our radar for later in the year, but then again, that would whack not just us, but Californian production too.

“This El Nino risk points to a second dark cloud and that’s the politicisation of water storage. It seems nuts that rainwater storage, so beneficial to the primary industries, regional economic development and even those in Grey Lynn, is being painted as a bad thing.

“What seems equally nuts, are proposed nitrate levels for Hawke's Bay’s Ruataniwha scheme, which are 14 times more stringent than the international standards for drinking water.

“If that goes wider afield then you are talking Farmergeddon for not just dairy, but horticulture, viticulture, sheep, beef and goats too. All industries bar apiculture, fishing and forestry.

“Look, we dairy farmers are trying our best to use payouts to become better employers, improve health and safety and invest in our farm environment. Good work takes time and from Lake Rotorua to Otago’s Shag River, we are now seeing real signs of improvement.

“It’s why we are upbeat on the payout and the forecast but far less upbeat about where policy and politicians maybe taking us,” Mr Leferink concluded.


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