Fonterra forecasts higher 2017 payout


Fonterra has forecast there will be a lift in payments to its farmers next season.

The co-operative has announced an initial forecast payment for the July 2016 - June 2017 season of $4.25 per kilogram of milk solids. That is 35 cents more than this season's forecast payment of $3.90 per kg/MS.

But the forecast of $4.25 is below the level that economists had been expecting. Their predictions had ranged from $4.50 to $4.80.

Fonterra chairman John Wilson says the co-operative's forecast took into account the high New Zealand dollar, global supply, current inventory levels and the economic outlook for major dairy importers.

He says: "Conditions on farms are very challenging. The strength of the co-operative's balance sheet is enabling us to increase the advance rate in the first half of the new season.

"We will also bring forward payments for this season's milk. This will provide some assistance with on-farm cashflows."

Mr Wilson says the "relatively high" New Zealand dollar is impacting milk prices and Fonterra's forecasts.

"We are expecting global dairy pricing to gradually improve over the season as farmers globally reduce production in response to ongoing low milk prices, however we continue to urge caution with on-farm budgets."

The low global dairy prices have put pressure on farmers' budgets and on the New Zealand economy.

Dairy NZ estimates the average break-even point for dairy farmers this season is $5.25. However the break-even point is over $6.00 for some farmers carrying large amounts of debt.

The forecast of $3.90 this season will be bolstered by a forecast cash payment of between 35 and 40 cents per share. But that will still fall almost one dollar short of the $5.25 break-even point.

Fonterra did not adjust this season's forecast payment of $3.90 for this season. But it says that in July it will confirm its earnings.

The forecast for the 2016/2017 season will inevitably be revised, possibly several times.

Economists at ASB believe it could eventually be lifted to $6.00, depending on the pace at which global dairy prices recover.

The international prices will be influenced by not only demand from nations like China, but also by the amount of product being sold globally.

Analysts say a drop in supply from the European Union would help boost prices.


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