October 27, 2011
Fonterra's farm gate milk price decreases
Fonterra has declared to approximately 10,500 shareholder dairy farmers that the farm gate milk price has decreased from NZD6.75 (US$5.43) to NZD6.30 (US$5.07) per kilogramme of milk solids.
It means about NZD525 million (US$423 million) will be taken out of the economy.
Fonterra chairman Sir Henry van der Heyden said the fall was due to continued softness in commodity prices and a stronger New Zealand dollar.
"This softness of commodity prices has been reflected on Fonterra's online trading platform Global Dairy Trade (GDT), which has experienced eight successive price falls and one uptick since May."
He said the trade- weighted index, which reflects the price of the New Zealand dollar against its major trading partners, was down 15.7% since May.
Federated Farmers Manawatu/ Rangitikei president Andrew Hoggard said the move was "a surprise and not a pleasant one".
He has a dairy farm at Kiwitea, north of Feilding.
Hoggard said he doubted it would send anyone broke, but it would make Fonterra dairy farmers nervous.
"There was a lift in dairy prices on the Global Dairy Trade on the web, and I thought Fonterra might hold its milk price, but no."
It would mean that farmers who had thought about purchasing a new tractor or new machinery were likely to hold off on such purchases, he said.
"Dairy farmers will probably wait a year to see how things are going. But it should not stuff up anybody's life. But with Fonterra making these changes, it is a bit of a worry."
The season's share return forecast range of NZD0.40-0.50 (US$0.32-0.40) per share remains unchanged.
On the positive side, Sir Henry said there had been a strong start to the season. A long stretch of favourable weather had boosted pasture growth and contributed to record milk flows.
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