Fonterra reduces milk payout forecast

FonterraFonterra Co-operative Group Limited reduced its forecast Farmgate Milk Price for the 2015/16 season from NZ$4.15 per kgMS to NZ3.90 per kgMS.

When combined with the forecast earnings per share range of 45-55 cents, this means a total forecast available for payout of $4.35-$4.45 per kgMS and would currently equate to a forecast Cash Payout of $4.25 to $4.30 per kgMS for a fully shared-up farmer after retentions, the company mentioned in a statement.

Fonterra is forecasting its New Zealand milk production to be at least four per cent lower than last season as New Zealand farmers respond to the ongoing low prices by reducing herd size and feeding significantly less supplementary feed which is expected to have an impact on this Autumn’s production.

Fonterra’s payout was under pressure as international dairy prices fell further in the early part of the year, Westpac economists mentioned in a statement.

There was an increase in dairy prices in the latest GlobalDairyTrade auction, and world commodity prices in general are now benefiting from improved risk sentiment. But, according to Westpac economists, these developments will likely be too late to support this season’s payout.

They stated this latest downgrade will come as a disappointment to farmers, and could see business confidence slide further in coming months.

“This further reduction in the forecast Farmgate Milk price is the last thing farmers want to hear in what is proving to be a very challenging season,” said Fonterra chair John Wilson.

“At times like this, the business needs to do everything it can to drive every last cent back to farmers,” he said.

Wilson said the company’s management is fully focused on reducing cost and generating cash flow across the business.

“The continuing lift in financial performance and our balance sheet strength will provide opportunities to support our farmers’ cash flows,” he said.

Wilson said the company will provide an update on their interim results on March 23.

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