Today's announcement from Fonterra that the forecasted payout for the current season has dropped to $5.10 per kg/milk solids is in line with predictions published by NZX Agrifax in December 2008.
Susan Kilsby, Head Dairy Sector Analyst for NZX Agrifax and Dairy Week said, "While we are pleased that our prediction on this season's payout is on the mark again, this is obviously not great news for New Zealand dairy farmers, who after a great season last year may struggle with a $5.10 payout for the current season.
"The global credit crunch, a subsequent fall in consumer demand for dairy products and a weak New Zealand dollar have been the main contributors to today's decrease in forecasted payout from Fonterra.
"Consumers, in both traditional and emerging dairy markets, have been choosing cheaper protein sources as an alternative to dairy, due to the impact of the economic environment on household budgets. The return of sustained demand for dairy products will be key to uplifting dairy commodity prices again.
"It is our view that the reintroduction of subsidies in the EU is a real concern for New Zealand dairy exporters and has the potential to distort the dairy commodity market further. The direct effect of the reintroduction of EU subsidies is yet to be known, but indications are that it will delay positive pricing for dairy commodities.
With the return of subsidies in the EU and ongoing economic volatility, it is possible that we won't see an uplift in dairy commodity prices until late 2010.
¨Given the current market environment, we are currently predicting a payout of $5.00 for the 2009/10 season," said Kilsby.