Fonterra cuts forecast milk payout to $4.15/kgMS for current season

Thursday 28th January 2016

Fonterra Cooperative Group cut its forecast milk payout for this season as global milk supplies continue to outweigh demand, pushing out the timeframe for prices to recover for New Zealand's largest export commodity.

The dairy cooperative, the country's largest business, cut its forecast for the 2015/16 season to $4.15 per kilogram of milk solids, from a previous estimate of $4.60/kgMS. That's in line with last week's BusinessDesk survey of agricultural economists and dairy market analysts, which forecast a range of between $4.10/kgMS-$4.60/kgMS.

Outlooks for this season turned more pessimistic after prices dipped at a second successive GlobalDairyTrade auction this month. Fonterra had previously said its forecast was dependent on global dairy prices rising in the first half of this year. Fonterra said today that global economic conditions continue to be challenging and are impacting demand for a range of commodities, including dairy.

“There is still an imbalance between supply and demand which continues to put pressure on global milk prices," chairman John Wilson said in a statement. “Although New Zealand farmers have responded to lower global prices by reducing supply, that has yet to happen in other regions, including Europe, where milk volumes have continued to increase."

Still, while global demand remained "sluggish", Fonterra said it expected dairy prices would improve later this calendar year.

“However, the time frame for supply and demand rebalancing has moved further out and largely depends on a downward correction in European Union supply in response to the lower global prices," said chief executive Theo Spierings. "These prices are clearly unsustainably low for farmers globally and cannot continue in the longer term."

Fonterra said its business is "performing well" and is on track to generate improved dividend returns as it focuses on reducing costs, increasing efficiencies and shifting more milk into higher value products.

The forecast milk payout, combined with the earnings per share range of 45-55 cents, means a total available for payout of $4.60-$4.70/kgMS, equating to a forecast cash payout of $4.50- $4.55/kgMS after retentions, the cooperative said.

BusinessDesk.co.nz

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