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Fonterra’s forecast cuts deep across economy

It was not the news that farmers wanted to hear – Fonterra announcing that its forecast milk price for the 2023-24 season would include a reduction in the range from $7.25–$8.75/kg milk solids to $6.25–$7.75/kg milk solids.

Fonterra chief executive Miles Hurrell said the recently announced forecast reflected the decrease in Chinese demand for whole milk powder.

Fonterra Co-operative Council Chair John Stevenson told the Times-Age that given previous Global Dairy Trade auction results, farmers had already indicated an expectation of a downgrade to the forecast and were already looking hard at their budgets.

A reduction of $1 was more significant than many expected.

Although the co-operative has indicated publicly that they expect the demand to return, the question now is timing, Stevenson said

Farm management consultant Aidan Bichan, who also runs a 900-cow dairy farm in South Wairarapa, said that, at a fundamental level, farmers can’t control the demand from the marketplace – “worrying about this doesn’t help mental wellbeing”.

“We’ve been in this situation before [2015] – and survived. Cashflows were already under pressure from increasing interest rates and on-farm inflation; this decrease puts even more pressure on cashflows.

“The price cut will impact the wider community as $1.36b is wiped from the economy. This ranges from rural contractors, suppliers and community shops through to the Government with a lower tax take,” Bichan said.

Stevenson said the downgrade in Fonterra’s milk price is not the news New Zealand farmers wanted to hear.

He said it would have a significant impact on the short-term profitability of dairy farm businesses.

“On top of the forecast payout reduction, our farmers are dealing with cost inflation of over 15 per cent, many are facing their interest bills more than double as they roll off fixed-term interest rates, and the amount of required change to on-farm practices required from regulators and customers is significant. Weather conditions have also been really challenging in Wairarapa over the last 18 months.

“Dairy farmers are resilient. We have been through downturns before, and I am confident in the capability of our farmers to get through this.

“The medium-term outlook for the industry is strong. We produce a premium and versatile natural food product that the world wants, and we manufacture and distribute it through our farmer-owned co-operative,” Stevenson said.

Moving forward, Bichan believes the priority is in an overhaul of the budget, reviewing capital expenditure and concentrating on things that can be controlled.

“It is important to look after your people, animals and pastures – they are what will get us through the next period,” Bichan said.

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