Fonterra final payout great, but high dollar concerning

Federated Farmers believes Fonterra’s confirmation of its forecast 2008/2009 payout of $5.20 per kilogram of milksolids (kg/MS) vindicates its cooperative structure, but the high New Zealand dollar remains a concern.

“There was always a risk that the $5.20 kg/MS figure could slip backwards, so it’s a big relief that Fonterra has reconfirmed that as the forecast payout for the 2008/09 season,” says Lachlan McKenzie, Federated Farmers Dairy chairman.

“We are currently in a period where there is almost no income coming through the farm-gate. That means the 0.20 kg/MS from the added value component that will come in August, will be the first farm revenue for some months, with the balance coming in October.

“The volatility of the kiwi dollar remains the gorilla in the room for all farmers.

“While the Ministry of Agriculture and Forestry’s Situation and Outlook for New Zealand Agriculture and Forestry painted a rosier picture, it’s not predicated on the current US$0.65 cross rate but US$0.53 this year, US$0.49 next year and US$0.52 through to 2013.

“Farmers and Fonterra are probably more grounded about the dollar, hence the pessimistic short-term tone that came through in the latest Federated Farmers Farm Confidence survey.

“Despite the upside risk of the high kiwi dollar, Fonterra appears increasingly confident in the $4.55 kg/MS forecast for the current 2009/2010 season.

“The continued drop in international milk prices is reflected in the latest milk component of the forecast being $0.10 kg/MS less than what was initially forecast. On the positive side of the ledger, the value add component has been increased by 0.10 kg/MS to $0.55 kg/MS.

“This is highly encouraging and reflects the growth of Fonterra’s brands and growth out of the Asian markets.

“The lesson farmers can draw from this is being a supplier-shareholder under the cooperative is a lot better than just being a contracted milk supplier.

“Fonterra’s contracted milk suppliers are staring down the barrel of a forecast $3.90 kg/MS payout. That means being shared-up is worth $0.65 kg/MS or 14 percent more than just being a contracted milk supplier.

“It underscores why Federated Farmers believes firmly in the cooperative model. Being a contracted supplier means being treated as a commoditised part of the supply chain,” Mr McKenzie concluded.