December 14, 2007

 

New Zealand's dairy farmers to gain a fortune as prices hit record high

 

 

The average Fonterra farmer is set to receive a payout of at least NZ$806,180 (US$616,000) this season, after the cooperative today boosted its forecast to a record NZ$6.90/kg milksolids, the New Zealand Herald reported.

 

There is even speculation that prices would even hit NZ$7/kg.

 

Farmers were already having a bonanza season after the 2006-2007 payout of $4.35/kg: earlier forecasts for the year to May 2008 projected a boost of 47 per cent over last season, to $6.40/kg.

 

Fonterra's previous record payout, NZ$5.33/kg in 2002, was worth NZ$6.04/kg in 2007 dollars.

 

The latest forecast represents a 58.6 per cent jump of nearly US$3.2 billion in farmer revenue for this season, to NZ$8.625 billion.

 

Fonterra chairman Henry van der Heyden said the higher milk price being paid to farmers was due to an increase in milk supply which had flowed through to higher sales volumes at higher prices

 

Today's forecast comprised an increased "milk price" of $6.70 and a value-added component which remained at 20c/kg.

 

Fonterra has said that high commodity prices have squeezed profit margins for fast-moving consumer goods such as yoghurts.

 

However, the lower profitability was being balanced by improved performance from overseas investments.

 

Fonterra chief executive, Andrew Ferrier said the cooperative was just beginning to see boosted production by overseas rivals to cash in on the record commodity prices.

 

This is so particularly in US skim milk powder production, which would soften the market over the short-to-medium term, he said.

 

The ASB Bank said in its commodities report this week that dairy prices continued to edge off recent highs, and prices for the main products have declined between 2 per cent and 10 per cent from their peaks in US dollar terms.

 

However, Ferrier said the markets were structurally stronger, with the biofuel-driven demand for grain raising global farming costs, which in turn was pushing up global dairy prices. Fonterra controls nearly 40 percent of the global dairy trade.