Fonterra farmers set new benchmark

Farmers have been hit by a reduced payout as costs rise.

The just completed dairy season will set a new production record, providing a major boost to farmers' gross incomes and the rural economy.

Fonterra chairman Henry van der Heyden said yesterday a strong late season run had helped push production to the new high.

He said 1.215 billion kg of milk solids were expected to be produced in the 2005/06 season that ended yesterday.

That would be about 4.75 per cent more than the previous 2004/05 season's output of 1.16 billion kg and better than the earlier record of 1.202 billion kg set two years ago.

The expected 4.75 per cent rise compares with an earlier prediction of a 2.5 per cent to 3 per cent production rise - a 3 per cent rise would not have set a new record.

The extra 1.75 percentage points equates to more than $82 million extra income nationally or more than $7000 a supplier.

Ironically, the gross payout to dairy farmers for the just-ended season could end up being almost $380 million less than 2004/05, despite the new record. That is about $32,000 less in gross income a supplier.

The drop is because the latest payout to farmers is due to be $4.07/kg of milksolids, compared with $4.59 for the previous 2004/05 season.

But the record production will still be welcome news to dairy farmers who have complained of being hit by a reduced payout at a time when fuel and other costs are rising.

It will also be welcomed by rural sector businesses servicing farmers.

Van der Heyden said the record production reflected the good weather that had prevailed late in the 2005/06 season, particularly over the last six weeks or so, helping to maintain grass growth.

"You can see that just looking at the farmland out here," he said.

"If you get good weather, good weather means more grass. More grass means more feed into the cows, more milk."

On whether the higher-than-expected production might lift the projected $4.07/kg payout for 2005/06, Van der Heyden said: "All the numbers at the moment are showing us $4.07."

But the final payout for the just past season would not be confirmed until next month.

The recently released payout forecast for the 2006/07 season starting today is $4.05/kg.

Van der Heyden stood by that despite the lower dollar and Fonterra's cost reduction programme, noting: "We are seeing global demand just coming off a little bit and the prices are starting to soften."

He also said the dollar was back up to around US64c, not far below the average conversion rate for the 2005/06 season of US66c.

He believed there was every possibility a new production record could be set in the latest season.

With a significant amount of land converting to dairying, Fonterra had received the largest number of new supplier applications it had had since the co-op was formed.