Farmers brace for Fonterra call

Fonterra directors will this week announce a milk payout forecast for the new season, but weather-battered dairy farmers would much rather hear that their expectations of a pay rise of no less than $32,000 for this season are justified.

They hope strong commodity prices over the 2004-2005 season will provide some cushioning against what looks like being a lean new season, which starts next Wednesday.

Industry experts said national milk production for the 2004-2005 season was down an average 4 per cent because of a wet spring, a late summer, flooding and a long, dry autumn.

The weather also meant higher-than-usual numbers of cows did not get in calf and, therefore, would not produce milk in the new season.

A Fonterra spokesman said speculation that its directors would announce a final payout for the 2004-2005 season this week was misplaced.

Federated Farmers leaders hoped Fonterra would announce a payout increase for 2004-2005 of at least 10c a kilogram of milk solids, to $4.60 a kilogram. This would be an increase of $32,000 on last year for the average dairy farmer. The spokesperson said the final payout would not be announced until next month.

What Fonterra directors, meeting on Thursday and Friday, would announce this week was the payout forecast for the 2005-2006 season. They would also confirm the in-house "fair value" of Fonterra shares, now estimated at $5.11 each.

The share price is not subject to sharemarket influence.

Confirmation of this share price will mean a new dairy farmer, or one wanting to increase production, will have to pay Fonterra $5.11 for every kilogram of milk solids they produce. For a new entrant, this could mean finding $500,000 for shares alone.

Federated Farmers dairy chairman Kevin Wooding said farmers expected a new season milk payout forecast of $3.80 a kilogram of milk solids.

The 2004-2005 dairy season started with a $3.85 forecast. It has been increased a record four times during the season to the present $4.50.

Current season payout guidance from Fonterra, an effective monopoly which controls 96 per of the country's raw milk supply, is $4.50 a kilogram of milksolids.

Wooding said strong international prices had led farmers to expect that Fonterra directors would increase this to $4.60 a kilogram at least, though some Waikato farmers expected $4.65.

The average dairy herd produces 90,000kg of milksolids a season, which runs from June 1 to May 31.

Last season, Fonterra's milk payout was $4.25 a kilogram which earned the average producer $382,000 for the year. A $4.60 payout would mean $414,000 in the bank for the season.

Wooding said agriculture export experts had calculated there was "still 10c to 20c in the system" above the $4.50 guidance available to Fonterra farmers.