29 May 2013

Fonterra share price making some farmers uneasy

8:32 am on 29 May 2013

A dairy farming leader says the price of Fonterra shares and where it might head is making some farmers uneasy.

There's been a strong farmer response to Fonterra's offer to sell the economic rights to some of their shares through the Shareholders Fund set up as part of Trading Among Farmers (TAF).

Farmers will get $7.92 each for those shares, which were valued at just $5.50 when TAF was introduced late last year.

Units in the Shareholders Fund ended trading at $7.61 on the Stock Exchange on Tuesday.

Federated Farmers dairy vice-chairperson Andrew Hoggard says the lift in the share price in six months is a worry for farmers who need to buy Fonterra shares to match milk production.

"You can look at it as a positive in that it's representing that we've got a good investment in Fonterra but some will see it as a barrier to growth and expansion."

Farmers need one share for each kilo of milk solids they supply Fonterra.

The share price is well above what they're being paid for their milk, with the current forecast payout and dividend standing at $6.12 a kilo.

"The main challenge though will be that the dividend return you are getting from the shares is actually in percentage terms lower than what you've got to borrow at."

Fonterra will update its payout forecast on Wednesday.