Tuesday 26th January 2016
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Westland Milk Products, the dairy co-operative, has cut its payout predictions for its dairy farmers to $4.15 to $4.45 per kilogram of milk solids, down from $4.90 to $5.30/kgMS.
Chairman Matt O'Regan described the new prediction as "grim news" but said it would not be unexpected given the widely publicised state of the global dairy market. He said lower prices were expected to remain for this season and into the second half of 2016.
Westland was founded in 1937 and is the second largest dairy co-operative, a distant second to Fonterra, New Zealand's only corporate of global scale. Its annual report shows it has 430 farming families who supply it with milk and turnover of $639 million.
O'Regan acknowledged the downgrade would be unwelcome.
"It reflects Westland's views on what the market will deliver and we need to signal this to our shareholders so they can plan accordingly." He added that the recent lifting of sanctions against Iran offered some positive news for its farmers, as Westland has butter contracts in that market.
The payout is likely to be difficult for Westland's members. In its annual report published in November 2015, O'Regan noted that the operating surplus for the 2014/15 season was $4.95/kgMS and added: "your Board recognise this is below the break-even point for many farmers".
Last week Talley-controlled Open Country Dairy, NZ's second largest dairy processor, cut its milk payout by 30 cents to an average price of between $4 to $4.30 per kg/MS.
Fonterra is currently standing by its forecast total payout for the 2015/16 season of $4.60/kgMS, a payout it raised in September and affirmed in December. However, it's widely expected to cut the forecast, with a BusinessDesk survey of agricultural economists and dairy market analysts last week showing an expected payout of between $4.10 to $4.60/kgMS. Prices have fallen at both GlobalDairyTrade auctions held since the start of the year.
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