Fonterra maintains its forecast farmgate milk price

Fonterra has maintained its forecast farmgate milk price of $4.60/kgMS (milk solids).

In November, the co-op increased estimated earnings per share range to 45-55c.

This amounts to a total available for payout of $5.05-$5.15/kgMS and would currently equate to a total forecast cash payout of $4.95-$5.00.

Chairman John Wilson said the stable forecast reflected the Board and management’s view that international prices would continue to improve in the first half of next year.

We are looking out over the next nine months and basing our forecast on the view that current, unsustainably low prices will continue to impact production levels globally.

“We support the consensus view in the market that an improvement will take place, but the market remains volatile.

“While there are signs of a recovery, particularly in China, we still need the imbalance between supply and demand to correct,” Wilson said.

He also said that imbalance is starting to reduce with year to date production in the United States up by only 1% and slowing, and New Zealand volumes expected to be down by at least 6% over the current season.

In the EU, however, farmers are continuing to push production, currently up 1%.

Fonterra’s Board also reviewed the Fonterra Co-operative Support loan; the loan was made available on production from June 1 to December 31.

The loan of 50c/kgMS is interest-free until May 31, 2017 with repayments triggered when the farmgate milk price exceeds $6/kgMS, the co-op stated.

Wilson said the Board’s scheduled review had weighed up the improved farmgate milk price and higher earnings per share forecast since the loan was launched, when the milk price was at $3.85, and the need for financial discipline from the co-op.

The Board had decided not to continue the Co-operative Support loan for milk collected after December 31, but will monitor conditions and assess the need to continue the support if market conditions changed later in the season.

“We will provide some $390m in support to around 75% of our farmers through the most productive half of the season, including the peak.

“Farms typically produce 60% of their milk in the first half, with production beginning to taper off from December, so we have provided support when it is needed the most,” he said.

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