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Source: Reuters -
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Fonterra's payout forecast for next season is tipped to hit $8 per kg/milk solids which is "exceptional news" for the industry, says a dairy commentator.
Tim Fulton from the New Zealand Farmers Weekly told NZI Business today that the talk from the recent shed meetings between Fonterra and farmers strongly indicated a big jump in the payout by the end of the 2010/11 season, with prices starting from around $6 kilogram of milk solids (kg/MS).
"There has been a fairly solid sort of a nod towards that figure (of $8kg/MS) so that is exceptional news," says Fulton.
Fonterra chairman Sir Henry van der Heyden recently warned about volatility in the dairy market, but has also said farmers should budget for milk prices "around this year's level", which was lifted 40 cents to $6.10/kgMS at the end of April .
That rise continued this season's trend of recoverng prices after the lows of the 2008/2009 season.
Fulton says the figures are based on the forward sales that Fonterra has already committed to, which suggests strong confidence in the dairy market.
Farmers Weekly reports that Fonterra's chief financial officer Jonathan Mason did not specify how much of the next season's anticipated production was already contracted for sale, but he pointed out that the May online auction event contained sales for shipment through to January 2011.
"(Farmers) know that this is only a guidance and the results can vary, but next season is not a complete mystery to us and we are hedging and contracting in advance."
Hitting a high like $8kg/MS will also depend on the Kiwi dollar remaining where it is, but Fulton says Fonterra can afford to be confident based on those pre-sale figures.
"(Fonterra) has got that much of its business locked in ... they do have an extensive hedging policy and they do sell a long long way out, very early in the season."
Such confidence will reignite dairy farm expansion and conversion, says Farmers Weekly.
They asked Mason about van der Heyden's previous advice to farmers to budget on $4/kg/MS for the long-term. Mason would not commit himself to a new price point but says there is a "new equilbirum" in milk prices: "All I would say at present is the new equilibrium is somewhere between $4 and $6."
The dairy cooperative will make a formal payout forecast shortly before the new dairy farming season begins on June 1.
