Fonterra won't cut payout forecast for next season

Fonterra will not be cutting its payout forecast for next season as a result of the US decision to implement dairy export subsidies.

 

The co-op sees the US move adding uncertainty to the market but said it is too early to quantify its impact.

 

The subsidies would not change Fonterra's forecast but it would have a dampening impact on the future view, Fonterra managing director of global trade, Kelvin Wickham, said.

 

The outlook is negative but the bigger issue is the exchange rate (rising New Zealand dollar), which is undermining some of the stronger prices, Wickham said.

 

Economists and analysts are expecting the final payout for 2009-10 to be level or slightly below this season's forecast of NZ$5.20 per kg of milk solids. Predictions range NZ$4.90 to NZ$5.25.

 

Most analysts said the US move had not affected their forecast.

 

The US announced it would subsidise up to 92,000 tonnes of dairy products per year but has not yet set the level of subsidies. While the amount was small, but the ripple effect could be significant, Wickham said.

 

The US announced it six weeks before the end of the year on June 30, which makes available a full year's skim milk powder volume before June 30, he said.

 

The subsidies could lead to about an extra 70,000 tonnes of US product on the international market before June 30, and then another 46,000 tonne tranche in the following six months.

 

Wickham said the EU had been fairly reasonable in the way it managed its dairy export subsidies but the US move would pressurise the bloc to use subsidies to a greater extent.

 

Wickham said he don't expect to see an immediately reaction, but it may come later in the year.