New year price spike prompts Fonterra to raise payout forecast

The New Zealand-based dairy said it now expects to pay NZ $7.50 per kilogram of milk solids – 60 cents more than its previous forecast from December last year.

The latest increase reflects the continued upward movement in global dairy prices in recent times.

High milk prices ​

Fonterra said the average price paid at its latest globalDairyTrade held on 15 February was 23.7 per cent higher than the 1 December auction.

Sir Henry van der Heyden, Fonterra chairman, said the higher prices were good news for farmers.

“This significant Milk Price increase is welcome news indeed for Fonterra farmers, many of whose farm businesses remain under pressure after several challenging years and a current season marked by some difficult weather conditions.”​

Weather conditions have affected production in some parts of New Zealand but Fonterra said total milk production from its farmer shareholders in 2010/11 was broadly in line with the previous season.

Fonterra chief executive Andrew Ferrier said bad weather in different parts of the world was one of the reasons for the recent rise in dairy prices. The weather has put a dampener on global supply growth, which according to Fonterra stood at 1.8 per cent last year.

Ferrier also cited strong demand from China and other Asian markets as a reason for higher prices. Evaluating the impact on Fonterra, he said: “These higher prices have more than offset the negative effects of an appreciating Kiwi dollar against the US dollar.”​

Nevertheless, in 2011 financial year Fonterra expects higher milk costs to affect earnings within its commodities and ingredients businesses. Earnings from the consumer business segments are expected to be broadly in line with the 2010 financial year.