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Fonterra lifts payout forecast on improving global dairy prices

Tuesday 22nd October 2019

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Fonterra Cooperative Group now expects to pay dairy farmers more in the current season as global dairy prices rise.

The dairy giant lifted its 2019/2020 forecast farmgate milk price range from $6.25-7.25 per kilogram of milk solids to $6.55-7.55kgMS.

The advance rate Fonterra pays its farmer owners will be set off the mid-point, $7.05kgMS, of the revised range, it said.

“Demand for whole milk powder has been firm, and for the full season we’re expecting it to be above last year. Global WMP production is down year to date and expected to continue to decrease for the remainder of 2019,” Fonterra chairman John Monaghan said.

 “We are also continuing to sell our skim milk powder at higher prices than EU and US dairy companies in Global Dairy Trade events.”

Last week, the GDT price index rose 0.5 percent from the previous auction two weeks earlier. It was the third straight auction gain. The average price was US$3,330 a tonne, compared with US$3,306 a tonne earlier this month.

Chief executive Miles Hurrell said Fonterra opted to keep the payout range wide as it keeps an eye on a number of factors.

“These factors include global trade tensions and political instability in some of our key sales regions. And, as is always the case, we cannot predict the weather and clearly weather conditions play a big role in global supply,” he said.

Hurrell also said the strong demand for Fonterra’s milk and the prices that are being achieved relative to other milk-producing regions demonstrate the rationale of its new strategy to prioritise New Zealand milk.

“One of our four priorities is to support regional New Zealand. If you take the $7.05 mid-point of today’s revision to our forecast Farmgate Milk Price, it’s another $450 million into regional New Zealand,” he said. 

On Sept. 26, the cooperative unveiled its new strategy as it posted a net loss attributable to shareholders of $557 million in the 12 months ended July 31, widening from its maiden loss of $221 million a year earlier.

The new strategy puts greater emphasis on extracting value rather than pursuing volume. The strategy also brings the focus squarely back to New Zealand.

Hurrell said the midpoint of Fonterra's revised payout range will mean "our teams will need to continue to push hard to achieve our margins, but so far we’re comfortable with how this season is shaping up in terms of underlying business performance.” 

Units in the Fonterra Shareholders Fund last traded at $3.99 while farmer-owned shares were at $4.00.


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