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Fonterra cuts forecast 2013 payment by 30 cents, citing strong kiwi

BUSINESSDESK: Fonterra has cut its forecast 2013 payment to farmers by 30 cents, citing the continued impact of a high New Zealand dollar and commodity prices that are lower than they were a year ago.

The Auckland-based company lowered its forecast for the Farmgate Milk price component to $5.25 per kilogram of milksolids from $5.50/kgms and reduced its forecast for the net profit component to a range of 40-50 cents from 45-55 cents per share.

The kiwi dollar dropped after the announcement, to trade recently at 80.61 US cents from 80.84 cents immediately before. It traded as low as 74.73 cents in late May.

Dairy products are New Zealand's biggest commodity export.

"We've actually seen improving prices in recent GlobalDairyTrade trading events, but the strength of the kiwi dollar is eroding any gains," chairman Henry van der Heyden says.

Still, "prices are low compared to a year ago and the New Zealand dollar remains strong against the US dollar".

The unfavourable exchange rate is also hurting Fonterra's consumer businesses in many markets and the company was also feeling the effects of a "difficult retail environment" in Australia and New Zealand business.

Chief executive Theo Spierings says there are some early signs of strengthening dairy prices, with drought in the US curbing milk production and driving up the price of grain, while in Europe wet weather in the north and a heat wave in the south were hampering grain production.

This helped to explain "some of the firming in global dairy prices".

"Our forecasting anticipates some recovery in global dairy prices but we don't know how strong this recovery will be or when it will kick in," he says. "For this reason, our farmer shareholders should continue to plan cautiously."

 

Comments and questions
6

Yikes
With average production costs of 4.60/kg this critical industry is in real trouble. And so are the banks!!

Here we go again, another bonanza gone bust. Remember forestry, then kiwi fruit, then sav blanc and now dairy.

Years ago we converted a dairy farm to sheep. The same will happen again.
A massive drop in land values will give opportunity galore for the incoming generation.

20 years ago when the dairy revival started milk payout was $6-00 and land was about 10% of the price it is now.

Some big re-adjustments on the horizon I think??? Same old story. Super profits attract a huge influx of new players until its over cooked. That time is here. Thats without the influence of huge dairy expansions and production overseas or the 1000s of tons of milk powder stored in Kansas caves.

It's a cyclical industry. Medium term the outlook is not too bad for low cost producers.

Yep ,anything over 5 bucks is a bonus. The high input american imitators have forgotten that output is vanity ,but profit is sanity. Times about to get VERY interesting in the dairy world.