Fonterra milk payment announced

(Reuters)
(Reuters)

Fonterra has held its forecast milk payment for this season at $4.25 per kilogram of milk solids.

It has also announced that forecast earnings for this season will be in the range of between 50 and 60 cents per share. Today was the first time Fonterra has offered guidance on this season's dividend.

The earnings would take the total available payout this season for shareholder farmers to between $4.75 and $4.85.

That is below Dairy New Zealand's estimated breakeven point of around $5.20.

The forecast Farmgate Milk Price of $4.25/kg is better than last season's payment of $3.90/kg of milk solids.

The forecast dividend for this season of 50 to 60 cents compares to earnings for the season just gone (July 2015 - June 2016) of between 45 and 55 cents.

Fonterra expects to pay shareholder farmers a dividend of 40 cents for the 2015/16 season, on top of the $3.90/kg milk payment.

There had been a possibility that Fonterra might cut the $4.25/kg forecast today.

Fonterra chairman John Wilson says: "The co-operative is aware of how tough the situation on farm remains. We are focused on delivering as much cash as possible to our farmers by bringing payments forward while maintaining a strong balance sheet."

"This forecast is our best estimate at this early stage of the season. We will continue to update our farmers as we move through the season."

Craigs Investment Partners says global dairy prices are about five percent lower than when the predicted payment of $4.25/kg was initially announced on May 26, and the New Zealand dollar has been stubbornly strong.

The New Zealand dollar is trading this morning at 72 US cents, 94.82 Australian cents, 54.42 British pence and 64.50 Euro cents.

Mr Wilson says "The recent weakening of the Euro, combined with the continued strength of the New Zealand dollar, has meant a price advantage for European export dairy products."

"We expect global milk supply and demand to come into balance over the course of this season. Farmers globally are producing less milk in response to lower prices and we are forecasting a three per cent reduction in our New Zealand milk collection for this season."

Chief Executive Theo Spierings said the returns from the ingredients, consumer and foodservice businesses continue to grow in-line with Fonterra's business strategy to convert more milk into higher returning products.

Economists at Westpac are forecasting a milk price for this season of $4.60/kg, but with the possibility of a fall in prices.

Westpac economist Anne Boniface says: "Although we expect dairy prices to improve gradually from late 2016 into 2017, the strong NZ dollar is likely to weigh on farm gate returns, while at the margin, whole milk powder prices have also been a little weaker than anticipated in the first couple of months of the 2016/17 season."

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