NEW ZEALAND – The latest price reduction from Fonterra in response to a global over supply of milk will force many farmers into a tight corner.
This is according to Federated Farmers of New Zealand dairy chairman, Andrew Hoggard, who said there will be little or no “retro payments” to smooth out cashflow concerns.
He noted that Fonterra’s advance rate of $3.66 isn’t scheduled to pick up to $4.17 until February 2016, for the milk produced in January.
Justifying last week’s price revision, Fonterra repeated that the strong supply picture had been heightened with good growing conditions persisting in most dairying areas of the world.
Chief executive, Theo Spierings, insisted the longer term outlook remained strong and that current season forecasts took into account geopolitical events and major importer outlooks.
In a column to dairy producers, Chris Lewis, Waikato dairy chairman, said the next six months are going to be tough.
Fonterra revisions down to $4.40 are “disappointing news” but two co-op announcements of a higher payout for 2015/16 are slight consolation, he added.
“The cost of production is a lot higher than we are getting paid to cover,” said Mr Lewis.
“I don’t need reminding of the issues, as I and many other farmers know them full well. We just need to hunker down, deal with it as best we can, painfully as it is and somehow come out the other end stronger for it.
“We talk a lot about what is causing the payout to be so weak. There are the Russian issues, a growing Middle East war and ISIS disrupting supply lines, Europe having a great production year and the United States’ output is trucking along nicely for them.
“And of course here in New Zealand we have been seeing a massive volume increase of three to four percent each year, sustained for the past few years.
“Short term, there is a question of what pressure our production is putting on the remaining firm markets. Part of the present market weakness is from Chinese importers miscalculating world dairy supply.
“They thought there was going to be a shortage. They bid up to secure supply. They now have to stop bidding to let the overstocked inventories run down.”
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