Fonterra slashes payout forecast

The new forecast, announced today, is for $6.70-$6.80 per kg MS for a fully shared-up farmer, 45c lower than the opening payout forecast announced in May.

The revised forecast comprises a lower farmgate milk price of $6.30 per kg MS, down from $6.75. The season’s distributable profit range forecast of 40-50 cents per share remains unchanged.

The lower forecast is a reminder of how quickly dairy farm returns can change.

Only a month ago Fonterra confirmed its final payout for last season of $8.25 per kg MS with actual cash to farmers after retentions of $7.90, some $1.53 higher than the previous year.

For the average sized dairy farm, producing around 100,000kg of milk solids a 45c cut to the payout could mean up to $45,000 less cash this coming year.

Fonterra chairman Sir Henry van der Heyden said the lower farmgate milk price forecast reflected a continued softness in commodity prices and a stronger New Zealand dollar.

“This softness of commodity prices has been reflected on Fonterra’s online trading platform Global Dairy Trade (GDT), which has experienced eight successive price falls – and one uptick – since May,” Sir Henry said.

Overall, the GDT-Trade Weighted Index is down 15.7% since May 3 when the opening forecast of $6.75 per kg MS was announced.

Overall global economic uncertainty was also a factor in the downgrade.

Sir Henry said the opening forecast had anticipated an initial softening of international dairy prices, followed by a recovery.

“We aren’t yet seeing the recovery of international dairy prices we initially anticipated and we are also dealing with a much stronger New Zealand dollar.

“Higher prices often lead to increased supply into global markets from our global competitors, as well as reduced demand. We are seeing this and it is impacting prices.”

The forecast revision acted as a reminder to farmers to take a conservative approach with their farm budgets, he added.

Sir Henry said there had been a strong start to the season. A long stretch of favourable weather in New Zealand had boosted pasture growth and contributed to record milk flows across the main dairying regions, he said.