Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Fonterra's lower 2015 milk forecast to be drag on NZ GDP

Fonterra's lower 2015 milk forecast to be drag on NZ GDP, have less impact on earnings

By Jonathan Underhill

May 28 (BusinessDesk) - Fonterra Cooperative Group's forecast 17 percent drop in its milk payout for 2014/2015 will likely weigh on the New Zealand economy next year but will have less impact on the dairy exporter's own earnings, which have been driven by the gap between milk powders and other products.

The world's biggest dairy exporter forecast a farmgate milk payout for the coming season of $7 per kilogram of milk solids, down from a revised $8.40/kgMS for the current season. The total cash payout for 2015, including dividends, will be announced in July.

The company today affirmed the guidance it gave in December for 2014 earnings before interest and tax of $500 million to $600 million, down from normalised Ebit of $1 billion in 2013. It didn't give an estimate for 2015. Its dividend forecast was kept unchanged at 10 cents a share, having been slashed by two thirds in December. At the same time, Fonterra expects milk supply for next season of 1.6 million kgMS, up 2 percent on the current season forecast of 1.58 million kgMS.

The reduced payouts would all up take about $2.6 billion out of the domestic economy in the next 18 months, amounting to about 1.1 percent of gross domestic product, according to Con Williams, rural economist at ANZ Bank. But farmers' cash flow "is likely to step up a bit," he said. "One of the stories that has been missed is the productivity story."

"The coming year’s milk price forecast would be the fourth highest on record if achieved and the dividend still needs to be added," Williams said. "From a profitability and cash flow point of view farmers will still be in a very good position over the coming 12 months. In fact cash flow is likely to be very similar to the past 12 months."

The kiwi dollar climbed after the Fonterra announcement and was recently at 85.62 US cents, 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, who saw a cut as inevitable give the decline in dairy prices, according to Bank of New Zealand.

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.

Fonterra has flagged $400 million to $500 million of additional capital spending over the next three or four years building new capacity to reduce product mix constraints. That will include two new milk powder plants, one each in the North and South islands, the company said today.

Dairy product prices fell to a new 15-month low in the latest GlobalDairyTrade auction last week, after spiking up in early 2013, and Fonterra chief executive Theo Spierings expects more volatility in global markets.

“Dairy commodity prices have come off the peak reached in early February this year, as global supply and demand have rebalanced," he said. "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."

"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, were unchanged at $6, and have gained 3.5 percent this year.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Warming: Warming Signs From State Of Climate Report

Climate data from air, land, sea and ice in 2013 'reflect trends of a warming planet' -- says the latest State of the Climate report, launched by U.S. and New Zealand scientists. More>>

ALSO:

Scoop Business: Embrace Falling Home Affordability, Says NZIER

Despair over the inability to afford a house is misplaced and should be embraced as an opportunity to invest in more wealth-creating activity, says the principal economist at the New Zealand Institute of Economic Research, Shamubeel Eaqub. More>>

Productivity Commission: NZ Regulation Not Keeping Pace

New Zealand regulators often have to work with out-of-date legislation, quality checks are under strain, and regulatory workers need better training and development. More>>

ALSO:

Callaghan Innovation: Investment To Help Deepen Innovation Reporting

Callaghan Innovation, the government’s high tech HQ for Kiwi business, is to help deepen New Zealand media coverage of the commercialisation of innovation through an arms-length partnership with independent business news service BusinessDesk. More>>

ALSO:

Tax Credits, Grants: Greens $1Bn R&D Plan

In the Party’s headline economic announcement, the Greens have launched their plan to build a smarter, more innovative economy which has as its centrepiece an additional $1 billion of government investment in research and development (R&D) above current spend, including tax breaks for business. More>>

ALSO:

Inflation: CPI Increases 0.3 Percent In June Quarter

The consumers price index (CPI) rose 0.3 percent in the June 2014 quarter, Statistics New Zealand said today. This follows rises of 0.3 percent the March quarter and 0.1 percent in the December 2013 quarter. More>>

ALSO:

Half Empty: Dairy Product Prices Drop To Lowest Since December 2012

Dairy product prices fell to the lowest level since December 2012 in the latest GlobalDairyTrade auction, paced by whole milk powder and anhydrous milk fat. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus

Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news