Fonterra cuts 2014 milk payout forecast to $8.40, flags $7 for 2015
By Jonathan Underhill
May. 28 (BusinessDesk) - Fonterra Cooperative Group, the world’s biggest dairy exporter, cut its forecast 2014 milk payout by 2.9 percent and said it expects the payout for the 2015 season to tumble to $7 per kilogram of milk solids, reflecting a decline in world dairy prices and increased global supply.
Auckland-based Fonterra cut its forecast for the current season ton $8.40/kgMS from the previous estimate of $8.65/kgMS, which would have been a record. Its dividend forecast was kept unchanged at 10 cents a share, having been slashed by two thirds in December, and the dairy producer affirmed its guidance for earnings.
“Dairy commodity prices have come off the peak reached in early February this year, as global supply and demand have rebalanced," chief executive Theo Spierings said in a statement. "The shift in supply and demand over the past few months showed that volatility continued to exert a strong influence over the global outlook for dairy."
Dairy product prices have dropped 23 percent since Fonterra's board forecast a record milk payout in February. The board had used its discretion that month to keep the forecast payout 70 cents lower than what it would be using calculations from the regulated milk price manual, citing a production mismatch where the price of whole and skim milk powder surged ahead of higher margin products such as cheese and butter.
“After seeing recent improved stream returns on powders and other products, and considering the level of risk likely in the remaining three months of the financial year, the board has decided to reduce that 70 cent gap by 15 cents, to 55 cents," chairman John Wilson said today.
The kiwi dollar edged up to 85.51 US cents after the announcement, from 85.38 cents immediately before. The forecast 2015 payout is in the middle of the $6.50 and $7.50 per kg/MS expected by economists, according to Bank of New Zealand.
Dairy product prices fell to a new 15-month low in the latest GlobalDairyTrade auction last week.
Fonterra said it expects milk supply for next season of 1.6 million kgMS, up 2 percent on the current season forecast of 1.58 million kgMS. Supply was also likely to increase in other markets.
"There is currently more milk available for the international market to absorb," Spierings said. "We expect demand from China to remain strong. In Russia, there will be pressure on the balance between imports and local production. These factors are expected to continue influencing the supply-demand balance.”
Units in the Fonterra Shareholders' Fund, which gives investors exposure to the group's dividends, rose 1.4 percent to $6 yesterday, and have gained 3.5 percent this year.