Westland cuts forecast payout on falling global dairy prices, strong kiwi

Westland Milk Products Chief Executive Rod Quin

Westland Milk Products, the Hokitika-based dairy cooperative, has overtaken rival Fonterra Co-operative Group [NZX: FCG] in cutting its forecast payout to farmers, citing falling global dairy prices and the persistent strength in the kiwi dollar.

The cooperative revised its payout forecast to between $5.40 and $5.80 per kilogram of milk solids before retentions in the 2014/15 season, down from between the $6 and $6.40 kg/MS forecast in July. Chief executive Rod Quin pointed to the 12 percent drop in skim milk powder prices at the last GlobalDairyTrade auction, which makes up a substantial proportion of Westland's production as weighing on the new forecast.

"The reduction is driven by falls in prices across the global and the continued high value of the New Zealand dollar," Quin said in a statement. "Our traditional reliance bulk dairy commodities such as skim milk makes us more vulnerable to the cyclical swings of the international dairy market."

Fonterra yesterday affirmed its forecast payout at $6 kg/MS, saying it expects commodity prices to improve later this year or early in 2015, with global dairy demand continuing to grow.

The GDT price index slipped 0.6 percent to a two-year low of US$3,000 in the GlobalDairyTrade auction on Aug. 20, as a percent slump in skim milk powder was partly offset by a 3.4 percent gain for whole milk powder.

Westland's Quin said the company is continuing with its strategy to grow production of higher value nutritional products such as infant formula, including its recent $102 million investment in a drier at Hokitka to shift more production to those products.

(BusinessDesk)

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