Federated Farmers is toasting Fonterra’s decision to revise upwards, its forecast payout for the 2008/09 season from $5.10 per kilogram of milksolids (kgMS) announced in late January, to $5.20 per kgMS announced today.
“The ten cent revision may not sound like much, but for the June payment, it will represent some $120 million welcome dollars,” says Lachlan McKenzie, Federated Farmers Dairy chairman.
“This news comes at a time when many dairy farmers have dried off their animals ahead of winter, or due to a lack of feed resulting from a drier than expected autumn.
“Due to changes in Fonterra’s payout structure, many farmers would not have had any substantive income until September or October. You can imagine that since dairy farmers have to pay wages, electricity, provide winter feed and of course, put food on the table, this revised payout forecast is welcome news.
“The upwards revision backs Federated Farmers’ view that Fonterra, rightly, erred on the side of caution when it undertook the revision in January.
“This increasingly confirms the view that dairy has reached the bottom of the cycle.
“Banks should not have any doubt that dairy remains an excellent business to be in for well-run farms. The banks must end a mini-liquidity lock that is affecting farm businesses and sharemilkers. Farmers also look at the margin between 90-day bank bills and their financial facilities and ask who is farming whom.
“Farmers, meanwhile, must speak to their farm advisers, accountants and even the bank in an open book fashion to ensure they remain viable businesses.
“Clearly, Fonterra’s upwards revision is not good news for the doomsayers. Although growth maybe slow in the short term, it’s a positive sign for the medium term that will bring cheer to many farmers.
“It has also broken the run of bad news.
“We may not be able to afford champagne but we’ll be toasting this with a glass of milk tonight,” Mr McKenzie concluded.