25 Sep 2013

Fonterra milk forecast at new high

1:54 pm on 25 September 2013

Fonterra has raised the bar on milk payouts to farmers to a new record level with its latest forecast milk price increase.

The dairy co-operative has lifted its farmgate milk price by another 50 cents, to $8.30 per kg of milk solids.

With an estimated dividend of 32 cents a share on top of that, Fonterra's farmer owners are looking at a total forecast cash payout of $8.62 per kg for the 2013-14 season.

If that stands, it will be well above Fonterra's previous record payout of $7.90 three years ago.

It is also substantially above the final payout for the past season, which was confirmed as part of Fonterra's financial results released on Wednesday.

That payout of $6.16 per kg of milk solids is made up of a $5.84 milk price and 32 cents a share dividend, 4% below the previous season.

Fonterra has declared an 18% increase in its after tax net profit of $736 million for the past year, despite a 6% drop in revenue and a lower operating profit.

Chairman John Wilson says last season was one of two contrasting halves - after a superb first six months for both production and performance, the North Island drought struck.

He says milk production was down 9% in the second half of the year, relative to the year before.

Mr Wilson says the latest lift in the forecast milk payout for the current season reflects continuing strong international prices for dairy products, particularly whole milk powder driven by demand from Asia, especially China.

However, he says the co-operative has run into headwinds in the first half of the current financial year and it expects earnings will be significantly lower than the strong performance in the first half of the past year.

He says there is volatility in dairy commodity prices globally and also in relative returns for Fonterra's products.

Fonterra says prospects for the second half look more positive for consumer businesses, but remain uncertain for New Zealand milk products.

Forecast unexpected

Federated Farmers dairy vice chair Andrew Hoggard says the latest forecast milk payout lift comes as a huge surprise and farmers will be hoping it will hold.

"This has just really taken it to another level and you've just got to hope that it doesn't go down as easy as it seems to have come up," he says.

"This isn't money in the bank just yet, we've got to produce the milk, the world and market can go backwards."

Mr Hoggard says farmers were not expecting any substantial change in the payout for the previous season.

While the summer drought heavily influenced Fonterra's financial results for the past year, Mr Hoggard says its impact on milk supply has been a contributing factor to the big lift in the forecast payout this season.