Fonterra slashes 2015 milk payout forecast to $6/kgMS; kiwi dollar falls

Tuesday 29th July 2014

Fonterra Cooperative Group cut its forecast 2015 milk price payout by 14 percent, citing a decline in global dairy prices in the face of strong global production, a build-up of inventory in China and falling demand in emerging markets. The kiwi dollar dropped to the lowest in almost seven weeks.

The Farmgate Milk Price forecast for the 2014/2015 year was reduced to $6 a kilogram of milk solids from a previous forecast of $7 kgMS. At the same time the company forecast a dividend of 20 cents to 25 cents a share, up from the 10 cents it plans to pay this year.

The announcement, which came after Fonterra's board meeting, was widely expected, given that prices of dairy products have tumbled this year and reached the lowest level since December 2012 in the latest GlobalDairyTrade auction. The cut to the forecast was more than some economists had expected and the kiwi dollar weakened to 85.14 US cents from 85.45 cents ahead of the statement. The trade-weighted index fell to 79.54 from 79.77.

"Our forecasting anticipates some recovery in global dairy prices but it is too early to predict how strong this recovery will be or when it will kick in," chief executive Theo Spierings said in a statement. “As we continue to drive for growth in our consumer and foodservice businesses, during the first half of the current financial year we expect reduced cost of goods arising from lower dairy commodity prices to have a positive impact on returns."

He said the lift in the dividend estimate was "based on zero ingredients stream returns at this early stage in the season."

Units in Fonterra Shareholders' Fund, which give investors access to the company's dividends, rose 1.7 percent to $6.10.

Elevated dairy prices propelled New Zealand's terms of trade to a 40-year high in the first quarter of this year, providing a major impetus to the nation's growth, though economists say trade has probably peaked given the subsequent decline in prices of milk powder exports.

Exports of milk powder, butter and cheese make up 31 percent of New Zealand's total overseas shipments, based on government figures for the 12 months ended May 31, and surged 36 percent in that year. Dairy exports are almost three times more valuable than meat, the next-biggest commodity New Zealand sells to the world.

BusinessDesk.co.nz

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