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Westland Milk affirms 2015 payout, sees increase in 2016

Westland Milk affirms 2015 payout, sees increase to $5.60-$6 for 2016

By Jonathan Underhill

May 27 (BusinessDesk) - Westland Milk Products, New Zealand's second-largest dairy cooperative, affirmed its milk payout for the 2014-15 season and forecast an increased payout in 2016, when it expects Chinese whole milk powder buyers to return to the market.

The Hokitika-based company will pay $4.90 to $5.10 per kilogram of milk solids before retentions this season, having reduced its forecast for the payment for a third time in April. For 2015-16, it expects the payout to rise to between $5.60 and $6.00/kgMS.

Westland's payout guidance comes a day before an announcement is expected from Fonterra Cooperative Group, which is holding its board meeting today. Fonterra last month cut its forecast payout for the current season to $4.50/kgMS from $4.70/kgMS. Analysts in a BusinessDesk survey say the forecast for next season may be $5.50/kgMS to $5.75/kgMS.

Westland chief executive Rod Quin while his company's projection "might be more optimistic than some in the New Zealand dairy industry, it is our considered forecast of the expected outcomes for the approaching season.”

Quin said dairy prices are expected to recover as the 2015-16 season progresses, although "they’re expected to remain relatively low due to ongoing milk supply pressure from the US and the European Union."

"One bright spot is that Chinese whole milk powder buyers are expected to return with more demand in early 2016," he said.

The global dairy industry, though, is in uncharted territory, with the removal of European Union milk quotas after 30 years, ongoing sanctions against Russia and lower demand from China, with high imported stocks overhanging the market and growth in Chinese milk production, he said.

“In any single season, one of these factors would cause major uncertainty," Quin said. "It is the combination of all three occurring within this season, with impacts into 2015-16, that has created global disruption.”

Quin said Westland considered all these factors in setting its budget. The company expects prices to start on the road to recovery later in 2015 and Chinese customers to increase demand early in 2016.

Westland is forecasting a recovery in milk powder prices to about US$3,000 a metric ton by the end of the season.

Westland will start the 2015-16 season with a higher-than-usual advance payout of $4.40/kgMS, up from a more typical $3.85/kgMS, he said. That was "based on the expected need for cash required on farms to keep milk production as high as possible, while the company has robust cash flows and manageable working capital headroom.”

Fonterra is expected to detail its advance payout for next season in its announcement tomorrow.


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