Talk Money: March 23, 2016

Tony Field (Paul Henry)
Tony Field (Paul Henry)

Fonterra is expected to announce a much improved profit this morning, at a time when its farmers are struggling with much lower dairy commodity prices.

Brokers at Forsyth Barr are forecasting a six month after tax profit of $389 million. That would be a 136 percent increase from the same period a year ago.

The slump in dairy prices means Fonterra's costs are lower when it makes its value-added products.

Two weeks ago Fonterra lowered its forecast milk price for this season to $3.90 per kilogram of milk solids.

It has forecast additional earnings of 45 to 55 cents per share.

Fonterra management is expected to announce details of additional support for farmers. That might be an extension of last year's interest free loans. Or Fonterra might opt to increase the amount of earnings that it pays out to farmer shareholders.

There will be lots of questions for management. The cooperative has faced criticism over its treatment of suppliers.

Could management have done a better job of forecasting the fall in commodity prices and are they making enough progress ramping up the value add side of the business?

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