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Fonterra warns big drop in milk payout

Business

The world’s biggest dairy exporter Fonterra has announced a big drop in its forecast farmgate milk price payout, blaming global economic conditions.

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Fonterra, which has an office based in Adelaide and sources primary produce in South Australia, Victoria, New South Wales and Tasmania, announced the price for the 2015/16 season was now being put at $NZ4.15 per kilogram of milk solids from $NZ4.60/kgMS, it said on Thursday.

When combined with the earnings per share and retentions this would equate to a forecast cash payout of $NZ4.50-$NZ4.55/kgMS, well below the $NZ5 mark which is considered the break-even point for farmers.

The cut was expected and Westland Milk Products also cut its forecast payout this week.

Fonterra chairman John Wilson says there is less global demand for commodities, including dairy.

Low oil prices meant oil producers had less spending power and China’s recovery of dairy imports was slow.

“In addition, the Russian ban on European Union dairy imports continues to push more product on to the world market.”

New Zealand dairy farmers had reduced production, but other countries, including in Europe, production was increasing, Wilson said.

Since last September, prices at the GlobalDairyTrade auction for whole milk powder have fallen 12 per cent, and skim milk powder prices are down 8 per cent.

Wilson said the reduction would be very tough on our farmers but Fonterra would look at the best way to help its farmers’ cash flows.

Chief executive Theo Spierings says Fonterra supports the general view that dairy prices will improve later this calendar year.

AAP

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