Fonterra lifts forecast milk payments for 2017

Wednesday 24 May 2017 09:27 AM

Fonterra lifts forecast milk payments for 2017, 2018 seasons on higher prices

By Tina Morrison

May 24 (BusinessDesk) - Fonterra Cooperative Group lifted its forecast farmgate payout for this season, and raised its expectations for next season, as the world's largest exporter of dairy products benefits from rising prices.

The Auckland-based cooperative increased its expected payout for the current 2016/17 season to $6.15 per kilogram of milk solids, up from its previous forecast of $6/kgMS, and also raised its initial forecast for the upcoming 2017/18 season to $6.50/kgMS. It confirmed its forecast earnings per share range of 45 to 55 cents for the 2017 financial year, and retained its target for a full-year dividend of 40 cents per share.

The country's dominant milk processor is hiking its forecast payments to farmers as global dairy prices recover amid declining milk production in key exporting nations and as demand picks up from major markets like China. That provides a welcome to boost to farmers who have endured two seasons of milk prices below the level needed for most to break even.

"World dairy prices have risen in recent months and as we near the end of the season we have more visibility and certainty which makes us confident of our $6.15 position," Fonterra chair John Wilson said in a statement. "The increase in the forecast milk price for the current season and the improved forecast for 2017/18 will be welcome news for our farmers following two challenging seasons on farm."

Fonterra paid its farmer suppliers $3.90/kgMS last season and $4.40/kgMS the previous season.

The cooperative expects its milk collection from farms to be 3 percent lower in the current 2016/17 season compared with last season, as stronger production in March and April partly offset lower peak milk production, Wilson said.

Fonterra said its revenue in the first nine months of its 2017 financial year is up 8 percent at $13.9 billion compared with the same period a year earlier, as a result of higher milk prices. Its operating expenses for the nine months fell 4 percent as it managed its costs tightly.

Chief executive Theo Spierings noted that while margins in most of the cooperative's businesses are similar to last year, it had benefited from moving an additional 350 million liquid milk equivalent (LME) into higher value products in the year to date, and he confirmed the business was on track to exceed its target of moving an additional 400 million LME into higher value products by the end of the year.

Consumer and foodservice volumes in Greater China had grown by 40 percent so far this year, he said.

Capital expenditure is in line with expectations and expected to reduce in the 2018 financial year, and the cooperative's gearing is forecast to be in the target range of between 40-to-45 percent at the end of the year, contributing to the strength of its balance sheet, Spierings said.

Units in the Fonterra Shareholders Fund last traded at $6.13 on the NZX, and have gained 14 percent in the past year.

(BusinessDesk)

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