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Fonterra on track to meet prevous record payment

Tuesday 22nd February 2011

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Dairy co-operative Fonterra is on track to meet or slightly exceed its record payout of three years ago to dairy farmers as a result of rising international dairy prices and squeezed supply.

Fonterra has increased its forecast payout range to farmers by 60c to $7.90-$8.00 for the 2010/2011 season, before retentions, the company said today.

The 60c forecast increase totals $828 million, bringing the total forecast payout to $11 billion.

"This significant milk price increase is welcome news indeed for Fonterra farmers, many of whose farm businesses remain under pressure after several challenging years and a current season marked by some difficult weather conditions," Fonterra chairman Sir Henry van der Heyden said.

The forecast payout includes a forecast milk price of $7.50/kg milksolids, up 60c on the previous forecast.

The target dividend range was reduced to 25-30c per share from 25-35cps previously, as a result of lower operating earnings expected to mostly affect Fonterra's commodities and ingredients business.

The dividend would be paid out of distributable profit - which Fonterra is equating to net profit after tax - still forecast at $550 million-$690 million for the 2011 financial year.

A 100% share-backed farmer would receive a total of $7.75-$7.80 in cash, with the balance retained by Fonterra. Farmers are able to own shares covering up to 120% of their production.

If confirmed at the end of the season, the payout would meet or slightly exceed the record payout of the 2007/08 season, a Fonterra spokesman said.

International dairy prices have continued to strengthen this year, with the average price at the last week's auction 23.7% higher than at the start of December.

However, current market prices had a limited influence on the 2010/11 milk price as a large proportion of the season's production had already been sold, Sir Henry said. The season finishes at the end of May.

Total milk production was expected to be broadly in line with the previous season despite difficult weather conditions in parts of the country.

Strong demand from China and other Asian markets, and tight international supply, appeared to be driving dairy market prices higher, Fonterra chief executive Andrew Ferrier said. Global supply growth was likely to have slowed to 1.8%, from an earlier estimate of 2%.

The higher prices had more than offset the negative effects of the rising New Zealand dollar against the US dollar.

Fonterra is freezing wholesale local milk prices this year to soften the effects of rising international dairy prices.



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