The increase in Fonterrra’s average farmgate milk price is good news for local farmers and the Ashburton economy.

On Monday the dairy co-operative lifted its forecast farmgate milk price to between $6.50 and $8.00 per kg of milk solids (kgms), effectively increasing the midpoint payment by 50c to $7.25 per kgms.

The news comes after Fonterra slashed its average price to $6.75, down in August from a May forecast of $8.00/kgms.

Mid Canterbury Federated Farmers dairy chair Nick Giera said the increase was positive for farmers and for the local economy that relied on farmers spending money.

“The 50c increase in the midpoint could means the difference between a loss and a cash surplus for most farmers.”

Giera said farmers with a high level of debt could still be looking at a loss, given the high interest rates. However, the 50c bump in price “should be enough to steady the ship in terms of the average farmer”.

Fonterra chief executive Miles Hurrell said the improved price forecast reflected a drop in supply in New Zealand and increase in demand in recent global trade events.

“The El Niño weather pattern may have further impacts on supply, and this could be driving recent buyer sentiment.”

Hurrell said it was not yet clear whether the stronger demand from China would be sustained and Fonterra faced significant exposure to volatility in commodity prices and exchange rate.

“Our foreign exchange hedging strategy is designed to help lessen the impact of this, and also supports a higher advance rate level than would be possible without hedging,” he said.

There had been fears about the impact of gloomy forecasts on the local economy, with some dairy farmers expected to make a loss.

Dairy industry jobs account for 10.5% of employment in Mid Canterbury - more than one in every 10 jobs.

By Sharon Davis