War whispers and strong NZ dollar lead Fonterra to cut payout forecast

By Ben Bouckley

- Last updated on GMT

Related tags: Milk

War whispers and strong NZ dollar lead Fonterra to cut payout forecast
A stronger New Zealand (NZ) dollar, higher levels of global milk production and uncertainties on international markets – including a potential Middle Eastern conflict – has led Fonterra to lower its farmgate milk price for the 2011/12 season.

The revised pay forecast – to $6.75 - $6.85 (€4.20 to €4.26) for a fully shared-up farmer, represents a 15 cent cut from the company’s previous forecast.

This new figure takes account of a lower Fonterra farmgate milk price of NZD $6.35 per kg of milk solids (down from $6.50), while the season’s distributable profit range forecast of $570-720m (40-50 cents per share) remains unchanged.

Fonterra CEO, Theo Spierings, said the current market trends indicated that stronger global milk production would continue into 2012. 

He said: "While we have had a strong start to the season in New Zealand, with record milk flows, we are also seeing higher milk production levels in the US and Europe."

Negative impact on commodity prices

International milk powder demand, however, currently appeared robust, Spierings said. He added that this should help offset the impact of stronger milk supply growth for Fonterra.

"In the past few weeks, global markets seem to be reacting to the ongoing economic difficulties in Greece, the potential for conflict in the Middle East [between Israel and Iran] and China's reduced growth forecast. These events appear to be having a negative influence on most commodity prices,” ​Spierings said.

He added: "We think [that] dairy commodity prices are likely to remain under some pressure through to mid-2012.”

Fonterra chairman, Sir Henry van der Heyden, said that Fonterra had seen price declines in five out its last six Global Dairy Trade (GDT) trading events,with the trade-weighted index down 5.7% since December 13, when Fonterra announced its previous $6.50 per kg milk solids forecast. 

Fonterra is required to consider its Farmgate Milk Price every quarter as a condition of the Dairy Industry Restructuring Act (DIRA).

The firm will announce its interim results on March 29.

Related topics: Manufacturers, Fonterra

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