Fonterra confirms drop in milk payout, suggests caution for farmers

Fonterra has announced a drop in milk payout to farmers, saying global milk supply remains stronger relative to demand.

The co-op has revised its 2018/19 forecast Farmgate Milk Price range from $6.25-$6.50 per kgMS to $6.00-$6.30 per kgMS and shared an update on its first quarter business performance.

Fonterra Chairman John Monaghan said the revision in the forecast Farmgate Milk Price was due to a strong supply of global milk, which has driven global prices down.

"Since our October milk price update, production from Europe has flattened off the back of dry weather and rising feed costs. US milk volumes are still forecast to be up one per cent for the year," he said.

"Here in New Zealand, we are maintaining our forecast collections at 1,550 million kgMS," said Mr Monaghan.

He also sounded a warning about possible impact of weather this summer.

"NIWA is saying its likely we will see an abnormal El Nino weather pattern over summer and this could impact our farmers' milk production," he said.

Mr Monaghan said there are still a number of unknowns in the global demand and supply picture and the co-op recommend farmers budget with ongoing caution. 

Fonterra's Advance Rate has been set off a milk price of $6.15 per kgMS.

Meanwhile it has confirmed it is looking at selling ice cream business Tip Top as part of its portfolio review.

"We have appointed FNZC as our external advisor to work with us as we consider a range of options," Mr Monaghan said. 

"We want to see Tip Top remain a New Zealand based business and this is being factored into our options," he said.

In a first quarter business update, Fonterra's first quarter gross margin of $646 million is down $14 million compared to the same period last year and up slightly on a percentage basis from 16.6 per cent to 17 per cent. 

Chief Executive Miles Hurrell said the co-op generally makes a smaller proportion of its total annual sales in the first quarter due to the seasonal nature of our milk supply.