28 May 2014

Fonterra trims forecast milk payout

10:24 pm on 28 May 2014

Fonterra is confident that demand for dairy products will continue to hold up, despite falling prices for milk powder.

Falling international prices have led the cooperative to trim back its forecast payout to dairy farmers for the 2013-14 season to $8.40 per kilo of milk solids, with an unchanged dividend of 10 cents a share on top of that.

milk tanker

Photo: PHOTO NZ

Wednesday's figure is 25 cents less than the previous forecast, but still significantly higher than last season's total of $6.12 and well above Fonterra's previous record of $7.90.

Fonterra has set its opening milk price for next season at $7, starting in June. Chairman John Wilson said that reflects the company's view of what will happen over the next 12 to 18 months.

"We are seeing farmers here in New Zealand when you've got a higher milk price and input costs are reasonable then you see more milk being produced. We're seeing that in the US, we're seeing that in Europe and we are seeing that in some other geographies. However, we're still seeing demand holding up reasonably strongly."

Mr Wilson said Fonterra would confirm the final figure for this season's payout when it announces its financial results in September.

"I think all of our farmers understand very clearly that it is the forecast for a season that hasn't even commenced yet," he said.

''But our forecast for the 2014-15 season, based on all the information that the Fonterra management team and board have in front of them, is to go at a $7 forecast for the milk price.

''We will not be announcing our dividend expectations, so therefore the forecast cash payout until after we have approved the budgets in June.

"The milk price forecast is based on where we see community prices today, exchange rates today and what we see going out over the next 12 to 18 months.''

The New Zealand dollar rallied after the announcement, with ASB rural economist Nathan Penny saying the market was relieved that next season's payout forecast wasn't lower.

However by 5.20pm on Wednesay, the Kiwi was buying 85.36 US cents, 92.14 Australian cents, 50.77 pence, 0.6262 euro, 87.01 yen and 5.34 renminbi.

'Damned good season'

Federated Farmers dairy vice-chairperson Andrew Hoggard said while it was disappointing to have the payout lowered, it had to be kept in perspective.

"Still a damned good season. We'd always like that extra 20c more, but in the history it's been one of the best seasons around."

He believed a critical factor which would influence next season's payout was the weather in the Northern hemisphere; favourable conditions for growing grass there meant the payout to farmers here could fall considerably.

On the flip side, Fonterra would benefit if Northern hemisphere weather was unkind to farmers there, Mr Hoggard said.