September 24, 2010

 

Fonterra lifts payout as another rise set to come

 

 

Fonterra lifted hopes for its 2010-11 payout as the diary giant unveiled a 29% jump in its handout for the previous year, supported by higher milk prices and higher profits - thanks to a disposal in the UK.

 

The New Zealand-based co-operative, the world's biggest dairy exporter, said it would split more than NZ$8 billion (US$5.8 billion) between its member dairy farmers for 2009-10, equivalent to NZ$6.70 per kilogramme of milk solids (kgms) they provided.

 

The payout was Fonterra's second highest, beaten by the NZ$7.90 per kgms two years ago, when world milk prices soared.

 

It edged to NZ$7.00-7.10 per kgms, from NZ$6.90-7.10 per kgms, its forecast for the 2010-11 handout, reflecting "greater certainty" over the group's performance, which forms the basis of part of the payment.

 

The bulk of the payout for last year reflects milk prices, for which Fonterra kept its payout estimate unchanged at NZ$6.60 per kgms, up NZ$0.50 on the 2009-10 figure, and reflecting dairy markets' recovery from last year's nadir.

 

Andrew Ferrier, the Fonterra chief executive, downplayed hopes of further price gains, saying there were signs that international diary supply and demand were "moving more in balance" at current price levels.

 

The comments echo forecasts from other observers, such as Rabobank and Australia's Abare commodities bureau, that rising import demand fostered by economic revival, and drought in Russia, is being balanced by increased production.

 

Fonterra said it collected a record quantity of milk from its own farmers, and exported 2.1 million tonnes of dairy products, also an all-time high. Coupled with higher prices, the improvement drove a 4.3% rise to NZ$16.7 billion in revenues for the year to the end of July.

 

However, the group relied on the sale of its share of a UK tie-up with Arla Foods for an 11.7% rise to NS$669 million in earnings.

 

Profits at the co-operative core Commodities and Ingredients division tumbled 38% to NZ$339 million, crimped by higher milk costs, which the business struggled to pass on to customers.

 

Simon Couper, chairman of the Fonterra's shareholders' council, said that the 2009-10 payout would be "welcomed" by farmers, "many of whom have had a tough year", with drought damaging pastures and so affecting production in northern areas of New Zealand.

 

Indeed, the 0.4% rise, to 14.7 billion litres, in milk volumes collected reflected a better performance by producers on New Zealand's South Island, with output from all North Island areas declining.