By Rebecca Howard
Oct. 31 (BusinessDesk) - Westland Milk Products lowered its forecast payout for the current season by as much as 6.6 percent due to the decline in global dairy prices and butter in particular.
New Zealand's third-largest dairy company now expects to pay between $6.10 and $6.50 per kilogram of milk solids versus a prior forecast of $6.50 to $6.90. Based on current indications, it expects to come in at the middle of the range, chairman Pete Morrison said in a statement. In the prior season it paid $6.12, less a 5 cent retention.
The factors driving the revision were largely out of Westland’s control, involving international market forces and an increasing abundance of milk supply globally, Morrison said.
“Ironically, we have had a very good start to the season. However, the build-up to peak milk period is higher than predicted and lasting for longer. While this might appear to be a positive for the cooperative, the reality is that during peak our processing capacity means we have to produce mostly low-value bulk commodity powders in order to ensure we can get the milk through. That means we have to make less high-value product, such as Infant and Toddler Nutrition, which give us the best returns," he said.
The move follows a similar reduction on Oct. 10 by dominant processor Fonterra Cooperative Group, which cited weaker global demand and a deeper supply pool for its lower forecast. Since Westland's initial 2019 forecast, the GDT price index has declined 2.1 percent at two GlobalDairyTrade auctions; butter fell 3.7 percent to US$4,114 per tonne.
According to Morrison, Westland is focusing on specialised products produced from milk segregated by different qualities. He said demand for its Ten Star Premium Standard milk is high, a product based on grass-fed milk, produced on farms complying with very high environmental, animal welfare and human resource standards.
He also said Westland will break ground on new capital works at Hokitika next month to increase capacity to process segregated milk - even during peak milk periods. "This will help move the cooperative towards a more secure future," he said.
Westland is currently undergoing a strategic review which Morrison said was "proceeding as planned". He still expects to update shareholders at the annual meeting on Dec. 5.
"Accessing new capital and reducing debt is a key element of our plans to further develop our segregation capacity," he said.