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Fonterra Lifts Payout Forecast And Advance Rate

5 October 2004

Fonterra Lifts Payout Forecast And Advance Rate

Fonterra Co-operative Group has announced a 20c lift in its forecast payout from $3.85 per kilogram of milk solids to $4.05. It has also increased the advance payout rate for milk to $2.90 kg/MS.

Announcing the increase, Chairman Henry van der Heyden said good market demand was supporting sustained strong commodity prices and had led to the Board making the revision.

"This revised forecast, early in the current season, will be welcomed by farmers who have had a tough start to the season because of the wet cold spring. They will especially welcome a boost to their cash flows from the higher advanced rate.

The higher advance rate will take effect on November 20.

Mr van der Heyden said Fonterra had started the season well and experienced good in-market demand.

"Prices are firm as the supply from major exporters, including Fonterra, is quickly being committed by customers looking for security of supply. We are increasingly confident that the current pricing will hold into 2005 and this confidence is reflected in the payout forecast increase. We remain conscious of the risk that demand could decline should prices move too high. We are also mindful that the world economic outlook remains uncertain and instability can quickly influence demand patterns."

Mr van der Heyden said the improved price forecasts were welcome and would help offset the currency impacts which Fonterra has signalled would be worse in the 04/05 season. Fonterra will convert its earnings this season at an average exchange rate of US60-62 cents compared to US52 cents last season.

He also reminded farmers that while high commodity prices reflected well in payout, they translated into increased costs in Fonterra's value-add businesses.

"But our shareholders understand this dynamic and appreciate that the value-add businesses come into their own when commodity prices are low, providing farmers with the best of both worlds. In the interim our consumer business New Zealand Milk and the value-add businesses in Ingredients are doing everything possible to recover these higher costs."

Month Payout Forecast 2004-05 Advance rate March 04 $3.50 kg/MS $2.50 June 04 $3.85 kg/MS $2.70 July - October 04 $2.80 Nov 04 - Feb 05 October 04 $4.05 kg/MS $2.90 Nov 04 - Feb 05

ENDS

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