10 Dec 2015

Price recovery needed to hold payout - Fonterra

3:54 pm on 10 December 2015

Dairy giant Fonterra is warning its forecast farmgate milk price of $4.60 per kilo of milk solids, which it is maintaining, depends on international prices increasing next year.

Fonterra sign on a farm. Rural Rapid Number.

Photo: RNZ / Diego Opatowski

Combined with the estimated earnings per share range of 45-55c, that will amount to a total available payout of $5.05 to $5.15 per kilo of milk solids.

The stable forecast was dependent on international wholemilk powder prices increasing in the first half of next year, Fonterra chairman John Wilson said.

"We've talked before about the need to get prices up around about that $3000 a tonne by the middle of next year," Mr Wilson said. "That's the consensus view, we support that view, but clearly prices will need to move over the first half of next year to support the $4.60."

Mr Wilson admitted there was still some way to go to get to that price.

"We're seeing supply and demand start to come back into balance - particularly for wholemilk powder - we are seeing demand pick up in a couple of our key markets, particularly China.

"But we did forecast that, at $4.60, our expectation was the market would still be relatively soft through this time period."

He acknowledged that farmers would find even a payout of $4.60 "very tough", and promised to keep them updated through the first quarter of next year.

The lower interest rates announced today would be a help to farmers with floating rates, Mr Wilson said - and, if that flowed through to a drop in the dollar, that would be helpful in increasing the payout.

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