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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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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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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Fonterra chairman Sir Henry van der Heyden cut the ribbon at an open day on Friday, on the 200ha farm, south of Te Awamutu. Stewart Ledgard, from AgResearch’s climate, land and environment section, said the farm’s greenhouse gas footprint was expected to be 20 per cent lower than that of the average NZ  dairy farm reports The Southland Times.

He estimated the Tokanui footprint, of 700 cows on 200ha, would be about 740g of carbon dioxide per litre of milk compared to the 900g average. Dr Ledgard said the farm’s greenhouse gas emissions would be measured next year. The future of NZ dairying and its export income depended on raising farm efficiency and lowering greenhouse gas emissions, he said.

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Fonterra shareholders look set this week to approve the first two of three steps of its capital restructuring proposal, but resistance to the third stage, which will be considered next year, is already evident reports The ODT.  Farmer attention has already being drawn to that contentious third step, the trading of shares among farmers, which will not be debated at Wednesday’s annual meeting in Ashburton.

Company and farming leaders appear confident the initial vote on the first two stages – strengthening the share structure and restricting the value of company shares – would get the required support of 75% of voters.  Some have questioned whether Fonterra would achieve its goal of attracting extra capital from shareholders, with farmers more likely to use income from higher milk prices to reduce debt and restore cashflow than buy extra shares.

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The 19% increase in Fonterra’s forecast payout will lift dairy farmers’ incomes by between $1.2 billion and $1.3 billion, economists say, but how much it boosts the wider economy will depend on how much they allocate to reducing debt reports The NZ Herald. Fonterra lifted its forecast payout to farmers to $6.05 per kilogram of milksolids, up from the $5.10 announced in September.

ANZ National Bank economist Kevin Wilson said the increase would return the sector to profitability and reduce stress levels. But with the dairy sector’s debt levels having increased by around $4 billion over the past year, debt repayment would be uppermost in many farmers’ minds, he said.

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Fonterra farmers keen to get an early start on share trading under the big co-operative’s capital restructure plan will have to wait while leaders focus on getting more fundamental housekeeping changes through a shareholder vote next month. It was notable there were calls for all three steps in the five-year programme to be introduced at once, which would mean introducing the third step – share trading between farmer-shareholders – earlier than planned reports the NZ Herald. Company leaders do not want to start discussions on this leg of the restructure until next year. An active market had to be set up and with great care, and the co-operative was not ready.

Chief financial officer Jonathan Mason said in the Friday broadcast Fonterra had $500 million to spend a year. Of this, $400 million was earmarked for essential operating costs, leaving only $100 million to pursue a one-time window of opportunity to boost marketing of the co-operative’s technical expertise and product innovation.

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Fonterra has emerged from dairying’s toughest year in living memory in a buoyant mood. The cooperative was yesterday praising its management of a year in which commodity prices plummeted as farmers produced more milk reports Stuff. It confirmed the payout to farmers for the year to July 31 would be $5.20 a kg of milksolids, well down on the $7.90 record high of the year before.

But it also pointed to a stronger balance sheet, reduced stockpiles and improved performance in adding value to its basic products. With a recovery in commodity prices now underway and a lift in the payout forecast for this year to $5.10, the company’s leadership was upbeat. Chairman Sir Henry van der Heyden said Fonterra’s strategy of “combining a broad business footprint, a powerful sales network, strong customer relationships and valued brands” was delivering more profit to farmers. He said the company had weathered business challenges and market volatility that were probably unique in the lifetimes of anyone involved in dairying.

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The average dairy farmer stands to make an extra $55,000 on the back of the increased pay-out from dairy giant Fonterra reports The NZ Herald. Fed Farmers dairy chairman Lachlan McKenzie said the extra $55,000 gross makes up for the $53,000 loss that the average dairy farmer had last year. “People don’t realise, they think the average farmer is getting a half-a-million dollar income but they have to pay all the wages and bills out of that,” said McKenzie.

He said the loss last year hurt farmers but the increase pay-out from Fonterra will go some way to improving the balance sheet this year. Fonterra announced today that it would lift its pay-out forecast to its farmers by 55 cents to $5.10 per kilo of milk solids. Fonterra chairman, Henry van der Heyden, said the revised forecast for the 2009/2010 season reflected “a sustained improvement in commodity returns and a more positive outlook in international dairy markets.”

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