10 December 2015
Fonterra has kept its forecast Farmgate Milk Price at $4.60 per kilogram of milk solids, providing some relief to farmers.
Along with the estimated earnings per share range of 45-55 cents announced in November, this amounts to a total available for payout of $5.05-$5.15 kgMS.
Farmers would receive a total forecast cash payout of $4.95-$5.00.
Chairman John Wilson said the stable forecast reflected the board and management’s view that international prices would keep improving in the first half of next year.
“We are looking out over the next nine months and basing our forecast on the view that current, unsustainably low prices will continue to impact production levels globally.
“We support the consensus view in the market that an improvement will take place, but the market remains volatile. While there are signs of a recovery, particularly in China, we still need the imbalance between supply and demand to correct.”
He said that imbalance was starting to reduce, with year to date production in the United States up only 1 per cent and slowing.
New Zealand volumes were expected to be down by at least 6 per cent over the current season but European farmers were continuing to push production, currently up one per cent.
Fonterra’s board also reviewed the Fonterra Co-operative Support loan of 50c per kgMS, deciding not to continue the loan for milk collected after December 31.
The loan was made available on production from June 1 to December 31.
The loan is interest-free until May 31, 2017 with repayments triggered when the Farmgate Milk Price exceeds $6 per kgMS.
Wilson said the board weighed up the improved Farmgate Milk Price and higher earnings per share forecast since the loan was launched, when the milk price was at $3.85, and the need for financial discipline from the Co-operative.
“We will provide some $390 million in support to around 75 per cent of our farmers through the most productive half of the season, including the peak. Farms typically produce 60 per cent of their milk in the first half, with production beginning to taper off from December, so we have provided support when it is needed the most.”
BUSINESS AS USUAL
The decision to maintain the milk price at $4.60 came as little surprise and some relief because milk prices had not risen as much as Fonterra had hoped, Waikato federated farmers vice-president and Fonterra supplier Andrew McGiven said.
“There’s still quite a bit of time in the season for it to come up and I was hoping they wouldn’t take a conservative approach and drop it.”
As long as Fonterra’s advance rate remained unchanged, it was business as usual for farmers, he said.
How milk prices fare early next year will dictate whether there is a forecast downgrade, however market commentators were hopeful of a lift in 2016, he said.
McGiven said he would like to see a slow creep upwards in milk prices rather than the volatile lifts and falls that had characterised the dairy market in recent years.
The decision to stop the loan at the end of this month came as little surprise as it was helping farmers through the hard part of the early season when most of the season’s spending took place.
“As a Fonterra farmer I was appreciative that they gave us the option to take it up and I think about 78 per cent of farmers did take it up. It certainly hit the spot in the early season when we were dealing with most of our expenses.”
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