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NZPA

Farmers may yet get another dairy payout boost

Tuesday November 10, 06:43 AM

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Fonterra's new forecast of an increased payout of $6.05/kg of milksolids for this season provides "much-needed breathing space," BNZ economists say.

They predicted last night the dairying margin should improve still further, because prices for inputs are falling, partly encouraged by the high exchange rate for the NZ dollar.

"Wage growth will slow a good deal further over the next six months or so, we suspect, in line with a further deterioration in the labour market," the economists said.

"A further lift in Fonterra's payout also can't be ruled out, given the clear positive momentum behind global dairy prices."

At the very least, cheese and casein still had some way to go to catch up to the percentage increases already seen in milkpowder prices, which tended to lead the pack.

But the economists said they did not know the extent to which the 50 percent recovery of milkpowder prices over recent weeks had been incorporated into the latest payout forecast.

"We suspect the dairy giant is reacting to events as they happen, rather than getting too far ahead of itself."

Fonterra chairman Sir Henry van der Heyden continued to warn of the volatility in global markets and the frustratingly high exchange rate, and he had warned that high prices may spur trade rivals to boost their milk production. Such a "global supply response" was most likely to come from the United States, but at this stage any US response appeared to be many months off as dairy farmers buckled under comparatively high feed costs.

Yesterday's lift from $5.10/kg to $6.05 -- worth roughly an additional $1.25 billion to farmers -- was likely to be muted in its flow-on to the regional economies, with farmers now considerably more cautious about their level and quality of spending.

"Even so, rural retailers will likely embrace any windfall gains, however watered down they might be, given the way the retail sector, in general, continues to struggle."

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