Fonterra prepares to cut milk payout forecast

Wednesday 4th August 2010

Fonterra is preparing to cut its forecast milk payout from the current $6.60 per kilogram of milksolids, reflecting ongoing weakening in global dairy prices, and the strength of the New Zealand dollar.

The co-ops chief executive Andrew Ferrier says a review was necessary following last night's auction on the global DairyTrade platform, where the gDT-TWI index was down 8.3%. This followed a 13.7% decline in July.

Fonterra chairman Henry van der Heyden had speculated in May, when the forecast price was raised by 50 cents per kilogram of milksolids to $6.60, that an $8 payout could eventuate if both dairy prices and exchange rate trends remained intact.

However, that outcome was already in doubt by June, when the first fall in prices for some months occurred.

“Encouragingly, whole milk powder had strengthened slightly for the February to April period,” said Ferrier. “But, the New Zealand dollar was at very high levels.

“We always said there would be a lot of volatility in the market and we are seeing it. It’s important in this environment to let our farmer-shareholders know as soon as possible if we think there could be any impact on payout.”

The Fonterra payout is increasingly a bellwether for domestic economic conditions, since dairy farmers' incomes and investment plans are closely tied to international dairy product price movements.

Businesswire.co.nz

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