New Zealand’s second biggest milk processor Open Country Dairy has slashed its milk payout forecast by more than $1kg for the season as industry pessimism deepens about the multi-billion dollar dairy sector’s earnings outlook.
Open Country had until last week been forecasting a milk payment of $4.75-4.95kg milksolids to its around 700 national supplier farmers.
Now it has told its farmers to instead bank on $3.65-$3.95kg.
Industry milk price setter Fonterra, which collects the lion’s share of the country’s raw milk from farmers, is still forecasting a season milk price of $5.25kg.
Fonterra, the country’s biggest company by revenue is expected to downgrade this forecast on or about August 7.
The expected milk price forecast slump is on the heels of last week’s Global Dairy Trade auction result where prices plummeted 10.7 per cent to US$2082 tonne, the lowest level in six years and continuing a string of falls this year. Fonterra-owned GDT is considered a barometer of international dairy prices.
Economists slashed their forecasts as a result of the latest GDT result with the country’s biggest rural lender ANZ Bank downgrading its milk price prediction for the season to $3.75-$4kg.
Waikato specialist dairy accountant Nigel McWilliam of Diprose Miller said the real concern around Fonterra’s expected August 7 downgrade announcement was the inevitable cut in the early season advance rate.
The season forecast related to a 16 month period, but with farmers currently borrowing $1.50-$2kg for working capital, the advance rate was the key focus now, he said.