Fonterra affirms $5.30 milk price payout

Photo / Christine Cornege

Fonterra chairman John Wilson has affirmed the world's biggest dairy exporter plans to pay its farmers $5.30 per kilogram of milk solids for the 2015 season.

Wilson affirmed the payout in presentation slides for Fonterra's annual meeting in Palmerston North today. It also expects to pay a dividend of 25-35 cents a share, making a total payment of $5.55 to $5.65. The 2014 payout was $8.50 including a 10 cent dividend.

The Reserve Bank cited the reduced milk payout in its financial stability report, released today. While New Zealand's overall financial system remained sound, risks in the dairy sector increased as plunging global milk prices prompted a reduced forecast payout to farmers by Fonterra, it said.

"The forecast dairy payout for the coming season has been reduced significantly, and could result in rising loan defaults should the lower payout level persist," deputy governor Grant Spencer said in a statement.

Wheeler said the bank hadn't given any thought to imposing lending restrictions or ratios on dairy lending, and that about 10 per cent of farmers still have about half of the sector's $33 billion in debt. The Reserve Bank expects dairy prices to recovery early next year, supported by growing Chinese demand, though it said there is a risk of protracted weakness if global supply keeps expanding or if China takes longer to resume its forward purchasing.

Farmers had used last year's high price to repay debt, and the early signalling gave them time to manage down their costs, which helps mitigate the threat posed by the dairy sector.

Spencer said farmers' deleveraging and higher farm prices meant average LVRs on dairy debt had reduced, meaning safety buffers in place on dairy farm debt have improved.

The Reserve Bank said farms using intensive methods on more marginal land and less able to substitute to feed produced on their own farms were particularly vulnerable, with limited scope to manage the downturn, and highly indebted farmers were likely to experience negative cash flow on the lower payout.