Fonterra’s ‘overdraft clearing forecast’ for 2013/14

MEDIA RELEASE

31 July 2013

Fonterra’s ‘overdraft clearing forecast’ for 2013/14

A milk price of $7.50 per kilogram of milksolids (kg/MS), now being forecast by Fonterra Cooperative Group for the 2013/14 season, is an ‘overdraft clearer’. Federated Farmers believes farmers will look to pay back credit lines extended to them during the drought.

“This increase in the payout forecast from $7 to $7.50 kg/MS comes off a very strong balance sheet,” says Willy Leferink, Federated Farmers Dairy chairman.

“Obviously this and an advance payout of $5.50 kg/MS, is great news after a disappointing back end to the last season. Given this time last year payout forecast were being paired back, seeing it go up is a huge relief.

“Federated Farmers advice is really to bank the gains and run a prudent operation. As we know from the drought there may still be some climatic surprises to come.

“Drought was a major factor behind farm debt growing to about $51.7 billion. It means much of the forecast, if it sticks, will go back into paying down these credit lines.

“The forecast is also a beautiful opportunity for farmers to build up cash reserves to further improve water quality. This not only supports Green Dairying into the future but is great news for our provincial towns and cities.

“One of the explanations for why the GlobalDairyTrade results have been fairly strong is a

tough Northern Hemisphere Spring followed by a hot Summer. This has impacted dairy production and we know the amount of milk available for global export remains thin.

“Of course a high payout can turn into next to nothing if the weather does not play ball. We will be relying on the weather gurus to keep us up to date and for water storage solutions to come forward.

“Of course a high milk price can be a double edged sword for Fonterra’s overall performance as a company. It generally means the cost of raw ingredient which goes into finished product also rises.

“We believe there will be a lot of pressure on Fonterra to come up with a substantial dividend but a high milk price will put pressure on margins. That is not necessarily a bad thing as it will drive the company to perform,” Mr Leferink concluded.
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