Market Talk: Expect flow-on effects from Fonterra forecast

Duncan Bridgeman and Harbour Asset Management's Craig Stent discuss the movers and shakers in the New Zealand share market on NBR Radio and on demand on MyNBR Radio.

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Management comments in the upcoming company reporting period will be key for investors looking to better gauge the effect of lower payouts to dairy farmers on the broader market.

Speaking on NBR Radio today, Harbour Asset Management portfolio manager Craig Stent says fallout from Fonterra’s lower farmgate milk price forecasts is spreading to other companies exposed to the dairy sector.

“Obviously, confidence in the rural sector is going to be a bit dented, as are farm incomes, and clearly that’s going to influence some of those sectors within the economy,” he says.

“Farmers are going to pull back their capital expenditure on things like fencing and irrigation and equipment plus supplementary feed, so it will have a flow-on effect on companies like Skellerup and PGG Wrightson.”
Fonterra is expected to significantly lower its forecast payout tomorrow from the current $5.25 per kg of milk solids.

Some economists are picking below $4.00 for the coming year.

Asked whether the market has fully factored in what this tumble in dairy prices is going to mean for the broader economy, Mr Stent says it’s a moving feast.

“I think the expectations from the market are running hard in trying to catch up with the story.

“ANZ came out today with a capital raising as part of its capital requirements but also increased provisions and some of that relates to potentially the dairy sector. I don’t think we’ve seen the full extent of that yet as it relates to the banking sector.”

Mr Stent and NBR news editor Duncan Bridgeman also discuss other market news, including Kathmandu’s rejection of Briscoe Group’s takeover offer, Intueri’s profit downgrade and Origin’s selldown of its Contact Energy stake.

To build your own NBR Radio playlist and enjoy instant on-demand access to any audio, sign up for our FREE smartphone-only subscription to NBR ONLINE.

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