They will have to last two months without milk income between the June cheque for any May milk and what Fonterra is calling the “rebalancing” August payment.
Chairman John Wilson said the sequence of nil July increase followed by the August beginning of “retro” or top-up payments from the 2014-15 season was inserted into the revised payments schedule announced on April 30.
It was done to protect the co-operative and ensure it did not have to claw back overpayments from any of its 10,500 suppliers, he said.
“We have more than two months of our financial year to run and there is significant volatility in world dairy prices so the milk price could still move up or down.
“There is no certainty that $4.50/kg milksolids (MS) will be the final price.”
The payments schedule still had room to make further adjustments, with as much flexibility as possible without having to ask for money back from farmers, Wilson said.
Fonterra area managers had distributed the three-part formula for calculating the post-season payments while emphasising the process was more complex than ever before.
“We have more than two months of our financial year to run and there is significant volatility in world dairy prices so the milk price could still move up or down.”
John Wilson
Fonterra
Farmers could then plug in their own production to the Farm Source online calculator or the commercially available alternatives to generate a cashflow forecast.
On 100,000kg MS annual production and the typical milk curve, it appeared the July payment would be nil, the August one about $12,000 and the September and October ones about $5000, plus payments for new season’s production.
That was a big contrast from as much as $200,000 an average farm was paid in tops-ups over July to October last year.
Wilson said he was unable to remember such low or nil retro payments schedules in his time with Fonterra.
Traditionally, Fonterra had paid 10c to 20c/kg in both June and July across all the previous season’s production, even in years when the milk price had been low.
“However, we have to make adjustments every year – never does the opening price end up as the final price.”
The high start to the milk price forecast, followed by three downwards revisions as the season progressed meant Fonterra had consistently paid to its farmers a much greater portion of the forecast in advance.
“At the end of January we were 87% paid based on a forecast of $4.50, at the end of April 84% and by the end of June it will be 95%-plus.”
Wilson also reiterated that Fonterra was not now constructed to smooth out milk payments year to year, obliged by its legislation and constitution to pay out everything as soon as it could.
“The money is better in the hands of farmers, the co-operative’s owners and have them do risk management,” he said.
Dairy farmers who had Cashmanager Rural farm management software could now get a module called Dairy Forecaster that took the advance milk payment schedules of the major processors and plugged them in to a working budget.
When farmers entered the expected monthly milk production the programme worked out the cashflow.
Masterton-based CRS Software said its new forecasting module was very timely this winter.
“Not only are retro payments low, they are hard to work out,” CRS managing director Brain Eccles said.
“It has got a lot harder for farmers so this is why farmers need tools like this.
“The difference between good farmers and excellent farmers is their ability to make tactical decisions during the year.
“They have to adjust to knocks; either price or weather or both.”
The programme also picked up all the year-to-date actual financials as farmers did their monthly accounts and GST returns.
