Milk payouts projected to drop

Average milk payouts to dairy farmers are set to drop back below $4/kg milksolids next season, Government economists say.

Ministry of Agriculture and Forestry economists today released details of their expectations for farming and forestry through to 2010, and warned that in the season to May 2008, the milk payout was likely to be $3.96.

Their national estimate for this season, ending in May 2007, is $4.10, compared with the $4.05 Fonterra -- which controls more than 90 per cent of the nation's milkflows -- has told its 12,000 farmers to expect.

In the past season, to May 2006, Fonterra paid out $4.10, compared to the $4.35 paid by a small Waikato company, Tatua. Neither company has yet made a forecast for 2008.

The MAF economists said the dairy industry had grown steadily over the past 15 years, with a lot of drystock farms converted to dairying, but growth would slow markedly over the next five years.

"The ongoing development of the dairy industry will need to recognise environmental impacts arising from increasing milk production -- for example, limitations on water for irrigation in Canterbury and concerns about nitrates," the economists warned.

Maintaining production growth would be a challenge.

Though production grew an estimated 4 per cent in the past season, to 1260 million kg of milksolids, it was still below potential.

Weaker international dairy prices were likely to be reflected in relatively static milk payouts over the next two years.

"As a consequence of this and greater competition for land, growth in dairy production is likely to be modest compared with the previous five years," MAF said.

MAF economists expected milksolids production to increase to only 1358 million kilograms by 2010, driven by a "moderate" expansion of the dairy herd by 80,000 cows between 2006 and 2010.

Their long range forecasts for milksolid payouts were for $4.30/kg in 2009 and $4.56/kg in 2010.

- NZPA