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Fonterra Lowers Forecast Payment

28 August 2012

NEW ZEALAND - The downwards payout revision by both Fonterra Cooperative Group and Westland Milk Products for 2012/13, are harbingers of harder economic and farming times.

The revised payout forecast range for the 2012/13 season of $5.65 - $5.75 before retentions for a fully shared up farmer, 30 cents down on the previous forecast range.

The revised forecast comprises a lower Fonterra Farmgate Milk Price of $5.25 per kilogram of milksolids, down from $5.50 and a lower forecast net profit after tax range of 40-50 cents, down from 45-55 cents per share.

Fonterra Chairman Sir Henry van der Heyden said most of the downward pressure on the Farmgate Milk Price forecast was due to the continuing strength of the New Zealand dollar.

Chief Executive Theo Spierings said there appeared to be some early signs of strengthening dairy prices, partially driven by global weather events.

“A serious drought in the United States is pushing up the price of grain, which seems to be affecting dairy production and tightening supply. Weather conditions in Europe, with extreme wetness in the northern regions of the continent and a heat wave in the south, are also impacting grain production. The Indian summer monsoon is also off to a slow start, with rainfall about 20 per cent below normal,” Mr Spierings said.

These factors were contributing to some of the firming in global dairy prices, however, Mr Spierings said any gains would continue to be impacted by the strong New Zealand dollar.

“Our forecasting anticipates some recovery in global dairy prices but we don’t know how strong this recovery will be or when it will kick in. For this reason, our farmer shareholders should continue to plan cautiously.” “Be under no illusion, Fonterra’s downwards revision this week of 30 cents per kilogram of milksolids (kg/MS) will hurt,” says Willy Leferink, Federated Farmers Dairy chairperson.

“This follows on from Westland Milk Products earlier 70 cent kg/MS scythe to its season forecast. Westland is now forecasting $5.00-$5.40 kg/MS for 2012/13.

“And the production season has effectively only just begun. When you consider farm working expenses before interest and tax are around $4.20 kg/MS, Fonterra’s key milk price forecast of $5.25 kg/MS leaves little or no freeboard."

Although Fonterra’s news wasn’t completely unexpected given the slide in international prices and Westland’s move earlier in the month. It doesn’t make confirmation any easier.

“Most farmers would have prepared two budgets based on a mid and low five dollar payout. Farmers should now realign their lower end budgets down to five dollars. I really hate to say it, but I’d dust off those emergency budgets from 2008/9 for added pointers.

“It has been a hell of wet season and with calving still underway, farmers are under immense pressure.

“Farmers under financial stress also need to be completely open with their bank manager.

“That’s why we need to get the message out to farmers; put your hand up if you need help. If you feel yourself overwhelmed don’t be stoic. Talk to your family, your neighbours and to us at Federated Farmers.

“We don’t want to see things bottled up and nor must we allow animal welfare to slide either. Neighbours shouldn’t hang back as I’d rather be damned for doing than damned for don’t.

“I also think each MP and each councillor needs to print off and the read the media releases from Westland and Fonterra. There is an unlimited policy expectation built on a finite resource with no regard to the cold hard reality we exporters face.

“It is time for policymakers to pull their collective horns in. If these revisions aren’t a warning then what is?

“Things globally are bleak and we can’t hang our hat on poor growing conditions in the United States or Europe.

“After all, who knows what our spring and summer will bring,” Mr Leferink concluded.

TheCattleSite News Desk



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