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Fonterra cuts forecast 2012 milk price, flags fall in 2013

Fonterra cuts forecast 2012 milk price by 30 cents, flags lower 2013 payment

May 22 (BusinessDesk) – Fonterra Cooperative Group, the world’s largest exporter of dairy products, has cut its forecast 2012 milk price and flagged lower payments in 2013 in response to a slide in global prices for dairy commodities.

The Auckland-based cooperative lowered the 2011/2012 forecast Farmgate Milk Price by 30 cents to $6.05 a kilogram, while keeping the net profit component of its payment unchanged in a range of 40 cents to 50 cents. That reduces the forecast payout range to $6.45-$6.55.

The outlook for 2013 is for further weakening in prices, with increased global milk production “flowing through to lower international dairy prices." As a result, Fonterra has an opening forecast for the Farmgate Milk Price of $5.50 a kilogram and a net profit component of 45 cents to 55 cents, making a total payout of $5.95 to $6.05.

The payout cuts had been expected, given that prices have been dropping in Fonterra’s GlobalDairyTrade auctions, reaching a new three-year low at last week's sale. The average price has now shed 41 percent in the past 12 months. The impact on New Zealand farmers will be offset, however, by the record volumes of milk produced this season and, in the past month at least, a decline in the kiwi dollar.

“There’s a lot of milk about and prices have softened,” chairman Henry van der Heyden said in a statement. “We think supply and demand should move more into balance later in 2012 which may help ease the downward pressure on prices.”

Still, there was no sense of when prices may recover, he said.

Fonterra set its fair value share price for the 2013 season at $4.52, unchanged from the current season.

The cooperative said it won’t issue dry shares during the 2011/12 end of season period because it wanted to minimise the risk for its farmers before receiving offer documents and making decisions about the Trading Among Farmers scheme. They are set to vote again on TAF next month, amid expectations Fonterra will gain a stronger mandate for the restructuring plans.


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