Farmers gain but still no rain
Fonterra has increased its forecast milk price for the 2010/2011 season by 30c to $6.90. The forecast distributable profit range for the 2011 financial year was unchanged at 40 to 50c per share, as was the target dividend range of 25 to 35cps, the company said today.
The estimated fair value share price for the next season in 2011/2012 was $4.52, the same as this season’s price.
Fonterra chairman Sir Henry van der Heyden said the decision to raise the forecast milk price reflected the continuation of high international dairy prices further into the 2010/2011 season.
But farmers were potentially facing much higher input costs if dry weather continued.
‘‘It is still early in the season, and some good rainfalls could help a lot but milk production in the North Island is declining and we know farmers in some regions are struggling,’’ Sir Henry said.
Chief executive Andrew Ferrier said global markets for key dairy ingredients remained finely balanced with solid demand being underpinned by some growth in supply out of the northern hemisphere.
‘‘ International dairy market prices have generally held up better than initially expected when we made the opening forecast in late May.
‘‘Offsetting this good news has been a stronger New Zealand dollar which is eroding the value of dairy export returns for our farmers,’’ Mr Ferrier said. A solid result at the December 1 global DairyTrade event, with average prices 1.5 per cent up from a month earlier had added to confidence in the season’s outlook.
Fonterra was reviewing the potential impact of the recent dry conditions on anticipated production levels.
The company said the rise in the underlying milk price would lead to a rise in the monthly payments to farmers.
But there was no change to the percentages in the advance rate schedule, which dictates the proportion of the milk price paid in advance to farmers during the season through monthly milk cheques.
Fonterra has held its forecast distributable profit range for the financial year to July 2011 at $550 to $690 million which would equate to 40 to 50cps.
The forecast target dividend range was also unchanged, at 25 to 35cps.
Mr Ferrier said although there was no change to the overall forecast profit range, management’s latest estimate had moved down to the lower end of the forecast range, mainly due to the pressure on earnings from the increase in the milk price and the strength of the New Zealand dollar.
The earnings impact was mostly being felt in the commodities and ingredients businesses, with the performance of the consumer businesses remaining in line with the previous forecast.
As a consequence of today’s announcement Fonterra now forecasts that a 100 per cent share backed farmer will earn, on average, the equivalent of $7.30 to $7.40 before retentions, comprising milk price plus distributable profit.
On a cash basis the same farmer was forecast to receive a total of $7.15 to $7.25, comprising milk price and dividend with the balance of the profit being retained by the cooperative.
GOING UP: Fonterra has increased its forecast milk price by 30 cents.