Production boost to dairy farmer payout

Photo / Thinkstock

Dairy production could be up about 3 per cent this season according to agricultural market analyst Agrifax, which could add hundreds of millions of dollars to potential farmer payouts.

Farmer co-operative Fonterra - which collected about 89 per cent of national milk production in 2009-10 - is forecasting a payout for the 2010-11 season of $7.90-$8 per kilogram of milksolids before retentions, which is potentially a record result.

Agrifax said a strong finish to the season meant it estimated that the milksolids collected this season would be about 3 per cent up on last year.

An $8 payout at Fonterra based on a 3 per cent rise in production could be worth about $10.6 billion - with each percentage point rise adding more than $100 million.

Fonterra chairman Sir Henry van der Heyden said the rise in production "does feel like about 3 per cent".

"The farmers have had an outstanding autumn, March, April and May's going to be good," van der Heyden said. "We've got good milk price, good overall payout and farmers have generally had a pretty good production year, so most of them will be feeling pretty good."

The previous highest Fonterra payout of $7.90 before retentions was in the 2007-08 season.

NZX Agrifax dairy analyst Susan Kilsby said increased production had a flow-on effect through the economy from spending by dairy farmers, especially in rural towns.

The dairy season started in June with a mild winter and in August had been looking reasonable before September brought flooding and snow.

"Then pretty good peak through the season, grass growth picked up and it was quite good till about mid-November and then production levels just basically crashed as the drought set in, especially in the northern regions," Kilsby said. "Back around Christmas it was looking unlikely that they'd be ahead at all this season."

The milk production season was winding down as winter approached but the volume of milk being processed was well above normal for the time of year, Agrifax said.

Kilsby said Agrifax had not yet made a prediction for the coming season.