July 31, 2014

Fonterra revises farmgate milk price for 2014/15 season

 

Fonterra has reduced its forecast for farmgate milk price, during the 2014/15 season, from US$7.00 to US$6.00/kg.

The company also announced an estimated dividend range of US$0.20-US$0.25 per share, amounting to a forecast cash payout of US$6.20-US$6.25 for the current season.

Chairman John Wilson said the lower forecast of farmgate milk price reflected continuing volatility, with the GlobalDairyTrade price index declining 16% since the start of the season on June 1.

 "We have seen strong production globally, a build-up of inventory in China, and falling demand in some emerging markets in response to high dairy commodity prices.  In addition, the New Zealand dollar has remained strong. Our milk collection across New Zealand last season ending May 31, 2014, reached 1,584 million kg, 8.3% higher than the previous season", Wilson explained.

"This drop in the forecast of farmgate milk price will have an impact on our farmers' cash flows. We continue to urge caution with on-farm budgets in light of the continuing volatility in international dairy markets."

Fonterra's chief executive, Theo Spierings, said the estimated dividend reflects the Co-operative's expectations for improved returns on its value-added and branded products, given the volume increases and lower input costs.

"As we continue to drive for growth in our consumer and foodservice businesses, during the first half of the current financial year, we expect reduced cost of goods arising from lower dairy commodity prices to have a positive impact on returns," Spierings added. "It is important to note that in light of the significant volatility, our dividend estimate is based on zero ingredients stream returns at this early stage in the season."

According to Spierings, the company continues to drive its V3 strategy throughout the previous season, hence the ability to support an increased estimated dividend range for the 2014/15 financial year.

"Our forecasting anticipates some recovery in global dairy prices but it is too early to predict how strong this recovery will be or when it will kick in. We will provide an update on business performance when we announce our annual result on September 24, 2014," Spierings concluded.