Forecast milk price of 66 cents per litre holds steady

Federated Farmers has welcomed Fonterra Cooperative Group locking in $7.50 per kilogram of milk solids (kg/MS) as its forecast milk price for the 2010/11 season. At about 66 cents per litre for liquid milk, the Federation cautions that this is revenue and not profit.

“Every Kiwi should welcome today’s forecast. Over the current season, the milk price forecast has increased by 90 cents and according to the NZIER, this will generate some 4,140 full time jobs in the wider economy,” says Lachlan McKenzie, Federated Farmers Dairy chairperson.

“I confidently predict that New Zealand’s dairy farmers will pay well over $300 million in direct taxation if this forecast holds up. That’s a sizeable chunk and doesn’t include the tax that will be paid by farmers on their shares in Fonterra.

“On top of that, we’ll put billions of dollars more into the economy by way of wages and buying what we need to farm. We’re more than paying our fair share and the public deserve to hear that said aloud

“While dairy is an economic dynamo, the milk price of $7.50 kg/MS is pure revenue and doesn’t represent the costs involved of running a farm. Quite easily, 65 percent of the milk price forecast is eaten up by farm business costs.

“The balance, say around $2.60 kg/MS or 23 cents per litre of milk, is what we have to pay the mortgage and Inland Revenue with before we can put any food on our tables.

“In many respects this is the 2008/9 season that never was. That season opened with a forecast of $7.60 but ended at $5.20 kg/MS and the average farm booking a loss of $58,500 according to MAF.

“In farming you have good years and bad years but that’s business. You do get rewards but they come with risks. It’s why the current focus of farmers is repairing balance sheets because we don’t know what the next season will bring.

“The opening for the 2011/12 season at $6.75 kg/MS is slightly up on this current season and that sends a powerful message about volatility.

“If the 90 cent appreciation in the milk price this season was reversed, then the average farm would have made a loss. This is the reality of our margins and why we caution farmers to run conservative budgets.

“We’re not the only exporters looking to China and Asia with milk power exports from the United States up 153 percent when I last checked.

“Our milk output is five and half times smaller than the United States, so New Zealand is far from the only game in town because seven countries produce more milk than we do. It’s also a big warning to politicians not to look at our dairy farms as some form of piggy bank.

“Politicians have to be very, very careful,” Mr McKenzie concluded.