The Weekly Dairy Report: Fonterra drops payout by 60c as budgets get even tighter

Another dry week this time with below normal sunshine hours has eastern South Island areas from North Otago northwards in moisture deficit, and grass growth rates plummeting into the mid teens.

Many North Island areas have also now gone dry, and in the Waikato soils are behind in moisture levels, and with a low payout year advisers are suggesting culling low producing cows rather than feeding supplements.

They also advise reducing demand with an early pregnancy test for early identification of dries, and to lengthen the rotation to ensure pastures respond quickly again when the rain does come.

NIWA report the chances of El Nino occurring are increasing, and present weather patterns indicate they may well be right.

Milk flows, while ahead in yearly recordings, are in steep decline because of the dry, and exacerbated further by the very wet conditions in the deep south.

Westland has reported a one day record milk collection as part of it’s 5% to date production lift, on the back of it’s successful Canterbury expansion.

FrieslandCampina announce another milk price drop in Europe, but feed, fertiliser and energy cost declines have helped to mask these falls.

Prices fell 1.1% at the dairytrade auction on the back of another big whole milk powder drop, and banks and dairy analysts are suggesting this weeks Fonterra forecast will start with a $4.

Today, Fonterra as expected, dropped the forecast payout to $4.70, although left the dividend prediction in that .25c-35c range.

With dairy farm costs  at $6/kg (including drawings reports Pita Alexander) shows just how serious this drop is, but what everyone in the sector will be looking at now, is the 2015/16 payout as a measure of how this industry will cope.

Continual updating of the financial position is imperative and with farm cashflows soon to come under pressure, regular communication with the bank will be important.

Synlait have announced they have run over budget by $50 million on their development plans to diversify away from producing dairy commodities, and reaffirm that this years payout will be low.