Westland cautiously maintains 2017 forecast payout, citing price volatility

Westland Milk Products, the Hokitika-based dairy cooperative, has cautiously affirmed its forecast payout for farmers for the current season, noting the recent recovery in global dairy market is still prone to volatility.

The milk processor kept its forecast cash payout range for the 2016/17 season of between $4.55 and $4.95 per kilogram of milksolids and an advance payout rate of $3.80 per kgMS from September to June. Last month it forecast an average operating surplus between $4.75 and $5.15 per kgMS for the season.

"The board recognises the market is moving but, given the analysis around potential pricing volatility, we remain cautious," chairman Matt O'Regan said. "The advance rate pricing reflects our commitment to supporting our shareholders and good cashflow management by the cooperative."

Global milk prices have bounced back from the lows of last year as producers around the world scale back their output, and milk processors including Fonterra Cooperative Group have been raising their forecast payouts as a result.

Mr O'Regan said a significant portion of Westland's sales need to come from value-added products sold to Asian middle class consumers for it to prosper.

Westland confirmed its 2016 payout to suppliers was $3.87 per kg/MS, below breakeven for most farmers. Mr O'Regan said the low payment was due to global oversupply driven by European dairy farmers, and a persistently strong kiwi dollar. The company's cash forecasts dating back to May this year were within the $3.80 to $3.90 per kg/MS range and Mr O'Regan said Westland had worked to maintain farmer cashflows by starting the season paying advance rates of $3.80 per kgMS and holding that throughout.

Westland was founded in 1937 and is the nation's second-largest dairy cooperative, a distant second to Fonterra. Its annual report shows it has 430 farmer suppliers and turnover of $639 million.

(BusinessDesk)

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