Dairy payout lifts farmer spirits
Farmers are starting to put the last few years of sleepless nights behind them as Fonterra’s payouts have lifted.
The dairy giant released its annual results to confirm a final payout to farmers for the 2016-17 season of $6.52 per kilogram of milksolids - comprising the farmgate price and dividend of 40c.
Only a year ago it had been $3.90/kg (plus a 40c dividend), and the year before that $4.40 (plus 25c), after scaling the heights of $8.50 in 2013-14. Fonterra posted an after-tax profit of $745 million, down 11 per cent on last year. Revenue was up 12 per cent to $19.2 billion, but earnings before tax and interest (EBIT) was $1.155b, down 15 per cent.
Federated Farmers dairy group chairman Chris Lewis described it as a ‘‘good solid result’’. ‘‘It’s putting more cash into farmers’ hands and that will put a smile on their faces for the coming season. And it’s good for rural businesses that depend on dairy.’’
Fonterra maintained its earlier farmgate forecast set in July for the 2017-18 season at $6.75/kg, with an earnings per share range of 45-55c for a total of $7.20−$7.30.
ASB analyst Nathan Penny said farmer shareholders would be largely happy with the result, and not surprisingly, the lift in the milk price over 2016-17 put the squeeze on Fonterra’s profits. ‘‘They’ve [farmers] been paid considerably more for their milk, while only seeing a modest fall in the profits of the company they also own.’’
Penny said the current season would provide a better test of Fonterra’s financial performance, because it expected to post similar profits over the season compared with the season just gone. ‘‘With the milk price likely to be circa 60c higher, this would indeed be a step up in financial performance.’’
Penny said that if the weather and New Zealand production did not improve, ASB would be likely to lift its milk price forecast to $7/kg or above in the next month.
Chairman John Wilson said the co-operative had made significant progress in the value-add side of the business. ‘‘Despite lower milk volumes due to poor weather in parts of the season, the business delivered a good result by prioritising higher value advanced ingredients and growing our sales of these in-demand and specialised products by 473 million litres this year.’’ Advanced ingredients included special proteins, highspec whole milk powder and mozzarella cheese.
Chief executive Theo Spierings said Fonterra had prioritised higher margin products.