Fonterra forecast a NZ$4.55/kg payout for the current 2009/10 year in May when the wholesale milk powder price was over US$2,100 a tonne and the currency was forecast to be around 59 USc. Since then the wholesale price has fallen a further 15% and the currency has strengthened 8% to 64 USc, suggesting an eventual payout closer to or even below NZ$4/kg if prices stay this low and the currency stays strong for the rest of the season.
Given the size of the dairy sector's contribution to the economy, this has the potential to lengthen and deepen the recession, drive dairy land prices lower and depress regional areas such as Waikato, Taranaki, South Canterbury and Southland that depend on the dairy payout for a large chunk of economic activity. Also, this will further pressure newly converted large dairy farms struggling under heavy debts.
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