Fonterra boosts milk payout
Forecast good news for farmers
Strong demand for butter and wholemilk powder has enabled Fonterra to boost its farmgate milk price forecast for 2017/ 18 from $6.50/kg of milksolids to $6.75, giving farmers more scope to recover from a two-year price slump.
The co-operative — in its first earnings guidance for the new financial year — announced a forecast earnings per share range of 45c to 55c, making the forecast total available payout to farmers in the 2017/18 season $7.20 to $7.30/kg, before retentions.
At $6.75, the milk price compares with $6.15 in 2016/17 and is well ahead of $3.90 for 2015/16 and $4.40 in 2014/15 — the latter two being well below the estimated average breakeven point.
“It is certainly a huge relief for our farmers to be in this position at the moment,” chairman John Wilson told the Herald.
Fonterra said guidance on future dividend payments would be provided as part of its next interim financial results. Wilson said the revised milk price forecast reflected the ongoing rebalancing of supply and demand in global dairy markets.
“We are seeing growing confidence on-farm across the country and, with global demand for dairy strengthening, the signs are for a good start to the season for our farmers and t heir rural communities, although following a challenging period of very wet conditions for some of our farmers,” he said.
The increased farmgate milk price would be welcome news to farmers as they continued to invest in their businesses off the back of an improved 2016/17 season.
Wilson advised farmers to budget cautiously, especially in the early part of the season.
He said the 45c-55c earnings per share range in part reflected the tightening of margins Fonterra had experienced as a result of the firmer milk price — which represent an increased input cost for Fonterra — over the last eight months.
Wholemilk powder, which hit US$3114 a tonne at the last Global Dairy Trade auction — up by just under US$1000 a tonne against the same time last year — was one of Fonterra’s higher returning streams per kg of milksolids 2014/15 2015/16 2016/17 2017/18 forecast at the moment, Wilson said. Butter prices have also rocketed — last trading at US$6004 a tonne — more than double the price set a year ago.
“Inventory is at historically low levels and we are also seeing strong demand in our key markets,” he said.
Chief executive Theo Spierings said the co-operative was wellpositioned to take advantage of improving demand for dairy nutrition across Fonterra’s i ngredients, consumer and f oodservice markets.
“I ncreasing numbers of consumers in our global markets prefer dairy for their everyday source Global Dairy Trade price index 1250 1000 750 500 June 2016 July 2017
It is certainly a huge relief for our farmers to be in this position at the moment. John Wilson, above, Fonterra chairman
of nutrition, and that is converting into strong demand particularly in consumer and foodservice products,” Spierings said.
Separately Fonterra, in its latest global update for July, said milk production was flat to declining in New Zealand, Australia and the EU.
There was dairy export growth from the US and EU.
In Australia where t he co-operative has been picking up suppliers at the expense of main rival Murray Goulburn, Fonterra’s milk collection came to 125 million kg of milksolids in the season ended June 30, up 3pc from the previous season.