Fonterra forecast payout great news

News that Fonterra is revising its forecast payout for the 2009/10 season upward to $5.10 per kilogram of milksolids (kgMS), is welcome relief for the entire dairy industry.

“While we don’t wish to sound like Scrooge, Federated Farmers cautions all dairy farmers to maintain conservative budgets. This is a forecast after all and we have a long way to go, but it is a great way to start the new season, Lachlan McKenzie, Federated Farmers Dairy chairperson.

“The uplift to $5.10 kgMS reflects some pretty solid numbers over the past few months for dairy commodities. It’s a resounding tribute to the way Fonterra is navigating the toughest trading conditions since the Great Depression.

“Based on Ministry of Agriculture and Forestry modelling, the effect of the payout will be to turn around a projected cash loss for an average dairy farmer into a small cash surplus, but one that is considerably lower than the average household income.

“The forecast payout this season is also $0.10 kgMS less than the past season so talk of a full-blown recovery seems premature.

“Just think what the forecast would have been if the dollar was within its fair value range. One of the inverse effects of the upward revision may be to spike the dollar higher.

“Exporters need solutions and they need those solutions fast given the dollar seems caught between the Australian dollar and rebounding consumer confidence. Yet the domestic economy’s bounce resembles more of a ‘W’ shape than the ‘V’ many hope it to be.

“While tradable inflation seems under control, non tradable inflation is still of major concern and is an area where the Reserve Bank needs to focus its attention. The last thing we want is for the export economy to be punished for excesses in the domestic economy.

“A forecast payout of $5.10 kgMS makes me think that this could be the beginning of end and I can tell you the relief is palpable,” Mr McKenzie concluded.