Farmers will survive Fonterra price cut
Co-op trims payout, citing volatile market
Dairy farmers will still make money at Fonterra’s l ower farmgate milk price, but they will be keeping an eye on costs if dry weather persists, economists say.
As expected, the co-operative yesterday cut its milk price forecast for the 2017/18 season from $6.75 to $6.40 per kg — still well above DairyNZ’s estimated breakeven point of $5.20 to $5.25/kg and last year’s price of $6.12/kg.
Chairman John Wilson said the lower forecast reflected a “prudent approach” to volatility in the global dairy market, the GlobalDairyTrade price for whole milk powder down almost 10 per cent since August.
Fonterra last week said it would pay French food group Danone $183 million in compensation for product recall losses incurred during the 2013 botulism scare.
The payment meant Fonterra had to revise its forecast earnings per share range for the 2017/18 financial year to 35c to 45c, down from 45c to 55c. The co-op’s dividend is expected to fall by a similar amount.
Wilson said despite demand for dairy remaining strong — particularly in China, other parts of Asia and Latin America — production out of Europe was strong and levels of European Union i ntervention stockpiles of skim milk powder were high.
The downward pressure on global prices is partly offset by the lower NZUS dollar exchange rate, he said.
Wilson said Fonterra’s strong financial position, customer order book at this point in the year, and confidence in demand meant the board is able to increase payments in January by 10c per kg and will hold the advance rate through to the payments in May.
“In effect, our farmers will receive equal or higher payments for their milk over this period than were scheduled under the previous $6.75 milk price,” he said.
ASB Bank rural economist Nathan 2009-10 The a2 Milk Company said it had reached a settlement with Lion Dairy and Drinks over a labelling dispute. “The parties have mutually agreed not to proceed with their cases against each other,” a2 Milk said in a statement to the ASX. The terms of the settlement are confidential. “The parties are very satisfied with the outcome and will remain focused on building and Penny said it looked like Fonterra was taking “a dollar each way” approach with a low milk price, coupled with a high advance rate.
Con Williams, ANZ Bank’s rural economist, said most farmers would be making “pretty good money” around the mid-$6 mark but many would face higher feed costs if dry conditions persist. 10-11 11-12 12-13 13-14 maintaining the strength of their individual brands,” a2 said. Legal action between the two was to have been heard in the Australian Federal Court in late November but the hearing was put off until next year because of a scheduling issue. The case relates to a claim on Lion’s packaging that Pura and Dairy Farmers branded milk “naturally contains A2 protein”. Chief executive Geoff Babidge told last month’s annual meeting of the
Fonterra has also reduced its forecast production by 1 per cent to 1.525 million kg — the same volume as last season — due to challenging weather conditions.
In its financial update, Fonterra’s first quarter revenue of $4 billion is up 4 per cent on the same period last year.
Sales volumes are down 20 per 14-15 15-16 16-17 17-18
Jamie Gray
company: “We continue to be extremely confident in respect of achieving a successful outcome in respect of the court action.” A2, which markets an alternative A1 beta-casein-free milk, this year surpassed Fletcher Building and a clutch of other market heavyweights in terms of its market capitalisation. The labelling case was being viewed in the market as being a possible hiccup in an otherwise strong performance from a2. cent to 3.9 billion liquid milk equivalent (LME), while the gross margin of 16.7 per cent was also down.
Chief executive Theo Spierings says the first quarter financial results were generally as expected as the cooperative started the year with record low inventory followed by the second year of low spring milk collections due to wet weather.