KEY POINTS:
Fonterra Co-operative Group says farmers disappointed that it has not lifted its forecast payout of $4.05 during the first half of the 2006-2007 season may yet be able to boost their income.
The forecast payout was left unchanged from $4.05 a kg of milksolids announced in May, down 1.2 per cent on the last season's payment of $4.10.
But company chairman Henry van der Heyden said some Fonterra farmers might be able to earn extra money towards the tail of the season through a one-off "autumn premium" for milk produced in late milkings.
Farmers who boosted their production in the run-up to the end of the season in May would be able to lift their cashflow.
"We will be advising farmers of the detail of the premium next week," van der Heyden said.
"We think farmers will welcome a chance to boost revenue at a time when cashflows are tight.
"We are able to offer this seasonal premium because market conditions are currently buoyant, global supply is constrained and Fonterra has confidence that we can quickly convert any increased autumn production into sales before the end of the season."
The Australian drought looks set to boost international dairy prices and Fonterra is looking at markets Australian companies might not be able to supply.
Dairy Australia has warned that milkflows on that side of the Tasman could be 6.9 per cent lower this season than last.
The lift in international prices is expected to come late in the season, according to Professor Bill Bailey, a former agribusiness expert at Massey University, who said global dairy prices had risen across the board.
Skim milkpowder, whole milkpowder and butter prices in the European Union remained strong, and it would be autumn in New Zealand before prices started to move down very significantly.
"It is expected that world cheese prices will remain firm in the near term as demand from a number of countries is strong and supplies remain tight," said Bailey, now at Western Illinois University.
A similar situation existed for butter - prices and demand were both firm - but the prices were so high manufacturers were starting to look for substitutes.
"Food manufacturers have been very reluctant to pass along high dairy ingredient costs to the consumer," he said.
"Consequently, consumer demand remains strong: Australian fluid milk sales are 4 per cent above last year's and tonnage for all Australian dairy exports is 7 per cent above last year."
New Zealand's dairy cow numbers rose by 3 per cent last season to more than five million and Fonterra produced a record 15 billion litres last season.
Fonterra's manager of sustainable milk growth, Mark Leslie, has said this season's overall milkflow has been kept ahead of last year with the help of 94 extra supply farms, and according to van der Heyden, output this year is running 1.5 per cent ahead of the same time last year.
But he did not know how many farmers would boost their "shoulder" production or how much milk they would add: "It's a little bit dependent on the weather."
Milk powder prices have jumped in international markets, partly because of concerns about reduced supplies from Australia, where production was trailing last year by 1.4 per cent in October, and partly because of a drop in US production.
Van der Heyden said the board's regular payout review decided to hold to the $4.05 set at the start of the season because the stronger dollar was having an increasingly negative impact on payout.
"However, we are capitalising on the recent increases in commodity prices to offset this very strong dollar, resulting in a stable forecast."
The $4.05 forecast made in May was based on the dollar at US61c.
- NZPA
