New Zealand-More Pain for dairy farmers.
NEW ZEALAND-MORE TROUBLE FOR DAIRY FARMERS.
Dairy giant Fonterra Cooperative Group Ltd. Wednesday slashed its forecast payout for its 11,000 farmers due to sharply falling international commodity prices and the deepening global recession.
Fonterra Chairman Henry van der Heyden said the collapse in dairy commodity prices coupled with the effects of the global financial crisis and fluctuations in the New Zealand dollar had badly hurt the company.
The Auckland-based dairy company which controls around 40% of the world’s dairy trade, cut its forecast payment to NZ$5.10 per kilogram of milk solids for the season ending May 31 from a forecast of NZ$6.00 in November.
The November forecast payout was also revised down from September’s NZ$6..60 forecast, which in turn was cut from NZ$7.00 in May, underscoring the dramatic deterioration in offshore dairy prices and demand.
The latest reduction likely stripped out nearly a NZ$1 billion from the battered economy, which slipped into a recession last year.
Chief Executive Andrew Ferrier said the difference between a NZ$7.00 payout price and NZ$5.10 equated to the company having NZ$2.8 billion less revenue.
Ferrier said it was too early to give an indication of the payout for the 2010 year.
Analysts were gloomy about the outlook. RBC senior economist Su Lin Ong said the 2010 year could see further weakness in dairy prices. "Amid a worsening drought which has already resulted in a cut in production, dairy producers are facing a double whammy of lower output and lower prices with the likelihood of even lower dairy prices for 2009-10," she said.
Ong said the Reserve Bank of New Zealand will have to continue cutting rates to provide a buffer to the economy.
"This (weaker commodities) is occurring against the backdrop of a sliding housing market, retrenching consumers, and rising unemployment," Ong said.
The RBNZ is widely expected to cut the cash rate 100 basis points to 4.00% at Thursday’s meeting, and economists say a bigger cut cannot be ruled out.
