Dairy farm problems
DAIRY farmers have again been urged to 'pull the belt buckle in' after Fonterra sliced 30c from its previous forecast range for the 2012-13 season to $5.65-$5.75.
The dairy cooperative has mostly blamed the continuing strength of the New Zealand dollar for a lower farm-gate milk price of $5.25/kg of milk solids, down from $5.50, and a lower forecast net profit after-tax range of 40c-50c, down from 45c-55c a share.
It represented an estimated $500 million drop in revenue for the New Zealand economy and followed Westland Milk Products' 70c/kg MS downwards revision to its season forecast payout, which was now $5-$5.40.
While some recovery in global dairy prices was anticipated, Fonterra did not know how strong that recovery would be or when it would kick in, and farmers were advised to continue to plan cautiously, chief executive Theo Spierings said.
The announcement did not come as a surprise, as some economists had previously forecast as low as $5.50.
North Otago Federated Farmers president Richard Strowger said while it would be tight, and uncomfortable but not impossible for some farmers, it could be really break-even stuff, to almost losing if they don't pull their horns in.
"The global economy is fragile and is going to continue to be so, and farmers are going to have to pull the belt buckle in and look at their costs," Mr Strowger said.
While there had been improving prices in recent GlobalDairyTrade trading events, the strength of the dollar was eroding any gains, Fonterra chairman Sir Henry van der Heyden said.
Overall, the GDT trade-weighted index was up 4.1 percent across the past four events, underpinned by a 7.8pc rise on August 15.
However, prices were low compared with a year ago, and the NZ dollar remained strong against the US dollar.
"Fonterra's consumer businesses are under pressure because of unfavourable foreign exchange translation effects in many markets, and a difficult retail environment affecting the Australia-New Zealand business," Mr Spierings said.
"There appeared to be some early signs of strengthening dairy prices, partially driven by global weather events.
"A serious drought in the US was pushing up the price of grain, which seemed to be affecting dairy production and tightening supply.
"Weather conditions in Europe, with extreme wet in the northern regions of the continent and a heatwave in the south, were also affecting grain production, while the Indian summer monsoon was also off to a slow start, with rainfall about 20pc below normal."
Federated Farmers dairy chairman Willy Leferink said most farmers would have prepared two budgets based on a mid and low $5 payout, and farmers should now realign their lower end budgets down to $5.
"It has been a hell of a wet season and, with calving still in progress, farmers are under immense pressure," Mr Leferink said.
"Those under financial stress need to be completely open with their bank manager and should also put their hand up if they need help.
"If you feel yourself overwhelmed, don't be stoic.
"Talk to your family, your neighbours and to us at Federated Farmers," he said.
Fonterra Shareholders Council chairman Ian Brown said farmers' resilience and early signs of a turnaround in commodity prices should help soften the news.
"At some stage, the massive effort farmers had been putting in the record volumes they had been producing and the product they had been moving needed to positively affect the payout," Mr Brown said.
Source: Argentine Beef Packers S.A.