Fonterra hikes forecast payout 75 cts to $6/kgMS on dwindling production

Friday 18th November 2016

Fonterra Cooperative Group has raised its forecast payout to farmers by 75 cents per kilogram of milk solids as dwindling production in Europe, Australia and New Zealand in the face of firm demand has helped rebalance global supply and demand.

The Auckland-based company expects to pay $6 per kilogram of milk solids in the 2017 season, up from a previous forecast of $5.25/kgMS and up from the $3.90/kgMS it paid out in 2016. The company also affirmed its forecast earnings per share of 50-to-60 cents with the higher milk price likely to hit margins, while moving extra milk into higher-value consumer and foodservice products in the first quarter.

"We've seen falling production in the major exporting regions, particularly Europe and Australia, and an unprecedented decline in New Zealand milk supply due to wetter than normal spring conditions across most regions," chairman John Wilson said in a statement. "We are very mindful that farm incomes will be affected this year because of lower milk production so we will be doing everything possible to build on our good start to the financial year and deliver the highest possible total payout to our farmers."

Dairy prices rose for a seventh time in eight auctions this week as dwindling supply in the face of robust demand boosted competition to secure product. New Zealand's rural sector has been recovering from last year's slump in dairy prices which saw the 2016 payout below what dairy farmers need to break even, stretching their balance sheets for another season.

Fonterra today said its first-quarter revenue rose 6 percent to $3.8 billion, outpacing a 2 percent increase in the volume of sales to 4.9 billion liquid milk equivalents, on a gross margin of 22 percent. Operating expenses fell 2 percent to $621 million and the world's biggest dairy exporter shifted 128 million litres of LME into higher-value consumer and food service products, which helped bolster its 2016 annual result.

The company forecasts annual milk collection to fall 7 percent to 1.46 billion kgMS, which chief executive Theo Spierings said was stifling sales.

BusinessDesk.co.nz

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