Fonterra Cooperative Group forecast cautiously welcomed

25 May 2010

Fonterra Cooperative Group forecast cautiously welcomed

While Federated Farmers is cautiously welcoming Fonterra Cooperative Group's 2010/11 season milk price forecast of $6.60 per kilogram of milksolids (kg/MS), it is also warning this will not be 2007 revisited.

"Federated Farmers analysis highlights volatility of upwards of $2kg/MS is increasingly the norm and most farmers are attune to this," says Lachlan McKenzie, Federated Farmers Dairy chairperson.

"It also has to be remembered the 2009/10 season opened with an eye-watering $4.55 kg/MS forecast. Thankfully, over the current season, it has grown to $6.10 kg/MS.

"I should add that current Ministry of Agriculture and Forestry modeling shows that it costs a staggering $4.88 to produce one kilogram of milksolids. On top of that farmers have to pay the bank and put food on our own tables."

"I don't wish to be a curmudgeon but controlling non-farm costs and charges is a core function for Federated Farmers. New costs, such as the emissions trading scheme, are an unwelcome tax on our production. "

"Yet these recent commodity price surges are due to externalities.That's why we urge caution both inside and outside the farm gate. Expectations have to be realistic."

"The frigid start to the European spring has hit the production of the world's largest dairy exporter. Tight credit conditions affecting the United States dairy industry is constraining the world's number three dairy exporter. In the Australian state of Victoria, which accounts
for 60 percent of Australian milk production, hot weather has hit production there."

"New Zealand, similarly, has faced drought with a majority of the nation's dairy herds in drought declared areas. While the drought has now seemingly broken, its tail will hamper spring production and pasture in many parts of the country will need renewal."

"It's important to reiterate that drought assistance is not 'cash in hand' as some may think it to be. Drought assistance is about advice that speeds recovery back to full production."

"So if you excuse the cliché about the 2010/11 forecast, farmers and Fonterra need to make hay while the sun shines. Federated Farmers advice is to budget conservatively and use any windfall to retire debt, especially expensive short term facilities."

"If anyone thinks this will lead to another dairy boom then they should think again. We've seen very little conversions in recent time."

"Only last week, the Real Estate Institute of New Zealand confirmed that just 12 dairy farms sold nationwide in the three months to April 2010. The sale price of $34,766 per hectare was also down six percent on the average price for the three months to the end March."

"That's the market speaking loudly combined with tight local farm business credit conditions," Mr McKenzie concluded.

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