The economy is in for a $2 billion transfusion from Fonterra’s forecast of a potential record 2010-11 season payout of “well over $8″ – but the patient is being warned not to party up large again.

 Yesterday Fonterra startled the industry and financial circles by following up a respectable opening forecast payout of $6.90-$7.10/kg milksolids for the season, which begins next week, with a longer range forecast of a possible $8-plus final season payout – if international dairy prices and foreign exchange rates hold at current levels.The opening forecast, which combines a milk price of $6.60 and a forecast distributable profit of 30-50c/kg, means around $650m more for the economy in the 2010-2011 year – but an $8-plus payout would mean a $2b economic bonanza, says Bank of New Zealand head of research Stephen Toplis.The $8 payout would mean a close to $1m income for a farmer producing the industry average of 120,000kg in the season. Out of this has to come the farm’s running costs, tax, labour, family costs and new Emissions Trading Scheme taxes reports Stuff.

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Fonterra has set its first payout forecast for the 2010/11 season, lifting its outlook for the milk price by around 50 cents per kilo to around NZ$6.60/kg.

Once dividends from profits are added, Fonterra could produce a payout of around NZ$7/kg. This would be the second highest payout in Fonterra’s history after the record NZ$7.62/kg paid out in 2007/08. Fonterra chairman Henry van der Heyden said it was possible the final payout could be over NZ$8/kg if the exchange rate and commodity prices stayed at their current levels. This would add up to NZ$2 billion to the economy from the NZ$2009/10 season, assuming the drought of the last few months does not hurt output too much reports interest.co.

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Drought has closed most of Fonterra’s 86 dairy processing plants around NZ this season several weeks earlier than usual reports Stuff. The dry weather has pinched supply to 70 per cent of Fonterra’s factories – most north of Taupo – forcing them to stop processing before the usual winter shutdown for maintenance, said general manager milk supply Tim Deane.

However, the farmer-owned co-operative and NZ’s biggest company, which processes 92 per cent of the country’s raw milk, said national milk production for the 2009-10 season would still be “a fraction ahead” of last season’s collection of about 14 billion litres of milk – thanks to South Island production. Drought in the upper North Island – Northland and Waikato – had cut daily milk production for this time of the year back 45 to 55 per cent on last season, Mr Deane said.

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The global outlook for dairy demand is strong but NZ dairy farmers must shore up their businesses against likely future volatility in returns, says Fonterra Chairman Sir Henry van der Heyden.“Our future as dairy farmers in NZ, our international competitiveness and this country’s future – it all depends on how we respond to the more volatile markets and ensure we make the most of our unique advantage in pastoral dairy farming.”

Speaking at DairyNZ’s Towards 2020 farmers’ forum today, Sir Henry said “Our farmers need tools in their businesses to manage this risk and to focus on our strength – growing grass and turning it into milk. This is where we lead the world. Our ability to grow grass and turn it into milk more efficiently than anyone else is our point of difference. We simply cannot afford to lose our edge or the control of our productive resources. This is where we need to focus. Then we will have a strong dairy farming legacy to pass on to our children and grandchildren – future generations of NZ dairy farmers.”

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Saudi families hungry for NZ -style gourmet burgers have been so enthusiastic in their turnouts that they have to wait in their cars until a security guard advises they can enter, says the NZ BurgerFuel franchise’s Kiwi founder and business development manager Chris Mason.  He said the listed company’s 150-seat, 300 square metre fast food restaurant at Damman, failed to factor in the size of a typical Saudi family group, which can be up to 15 reports Business Day.

“One Thursday night, which is like our Saturday night, we did the equivalent of the average NZ store’s weekly turnover,” Mr Mason said. Friday in Saudi Arabia is the religious equivalent of NZ’s Sunday. In accordance with Saudi culture, the outlet has a separate entrance and dining area for male diners without family members.  A 280sqm outlet is about to open in the United Arab Emirates tourist resort Dubai. Mr Mason said more than 20 more outlets were planned in Saudi Arabia.

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Fed Farmers commends Fonterra for raising its forecast milk price by 40 cents per kilogram of milk solids, but is warning that this rise must be kept in context. “Although this sounds like a lot of money and we’re very pleased by the announcement, we need to keep the actual monetary value of this announcement in perspective,” says Lachlan McKenzie, Fed Farmers Dairy chairperson.

“With around half of NZ’s dairy herds in drought declared areas, milk production is down significantly. So although those farmers might be getting a higher payout, they’re also producing less. “Most farmers will be using this extra payout to help get them through what has been a difficult season. Many farmers throughout NZ have had to dry their cows off early due to the drought and will have had to buy in feed to keep their cows in good condition.

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Fonterra has announced a 40 cent increase in its forecast milk payout for this 2009-10 milk season to $6.10 per kilogram of milk solids. Continued strength in global dairy prices, with demand growth beginning to outstrip supply, had driven the board’s decision to increase the forecast milk price, said chairman Sir Henry van der Heyden. The increase is the first since the forecast milk price was raised by $1.10 last November reports Stuff.

“This extra 40 cents per kg/ms will be welcomed by our farmer shareholders and also confirms that 2009/10 is shaping up as the second best in terms of cash payments to Fonterra farmer shareholders,” Sir Henry said. However, it came at a time when many farmers, especially those north of Taupo, were suffering from worsening drought conditions.

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International dairy prices look set to keep rising as drought-affected NZ  joins the list of countries posting reduced milk production reports Stuff. Dairy giant Fonterra is being forced to juggle customer requirements as supply to key Waikato powder manufacturing sites dries up. Fonterra, the world’s biggest dairy exporter, said it was reviewing all supply commitments yet to be formally contracted to ensure it could meet existing supply contracts as central North Island drought impacts on milk flows to its powder and cream manufacturing plants concentrated in the Waikato.

More than half Fonterra’s milk production comes from farms north of Taupo. Northland, which produces about 6 per cent of Fonterra’s milk supply has been an officially declared drought zone for some time, but now production in the central North Island, which includes dairy heartland the Waikato, is this month down 30 per cent on the same time last year, Fonterra said. International dairy prices are already reflecting constrained global supply with Fonterra’s internet milk powder auction this month recording a massive 21 per cent surge in average price per tonne.

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Rapidly falling dairy production as a result of drought in the North Island is expected to take a bite out of the March and June quarters’ GDP, although strengthening international dairy prices will help counter the dry horrors reports Stuff. Dairy giant Fonterra says more than 150 dairy herds are halting milk production daily on farms north of Taupo, from which it collects more than half its annual milk supplies. The drying off is a month earlier than usual.

Federated Farmers said 40 per cent of the national dairy herd was in drought-declared zones. ANZ National Bank chief economist Cameron Bagrie is doing his economic sums on the basis of general dairy production being down 2 per cent on a year ago. Last season Fonterra collected about 16 billion litres of milk. It had been budgeting on a milk collection increase of 2 per cent to 3 per cent this season, which finishes on May 31.

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The fear of overseas raiders preying on NZ’s dairy industry is behind moves by Fonterra to reduce its exposure to dissatisfied shareholders. The dairy giant has unveiled the third step of a plan to stop millions of dollars washing in and out of its books as farmer-shareholders buy and sell shares reports Stuff. Instead, those shares could be traded among shareholders daily, or the farmers could decide to leave it to Fonterra to buy or sell shares for them at the end of the season.

This would put an end to the so-called redemption risk that Fonterra says is holding it back. Chairman Sir Henry van der Heyden said yesterday the fear of not being able to feed growing populations was forcing countries to buy large tracts of land in other nations to grow their own food. The NZ dairy industry with its efficient pasture-to-milk system had been targeted by these countries in the last four to five years.

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