Fonterra forecast drops 30 cents

New Zealand dairy farmers are feeling the impact of the global economic recession as Fonterra payout forecasts drop to $6.05 this season.

Fonterra has announced a 30 cent decrease in its forecast Farmgate Milk Price for the current season to $6.05 per kilogram of milksolids (kgMS).

The forecast net profit after tax range is unchanged at 40-50 cents a share, meaning a forecast payout range before retentions is $6.45-$6.55.

It also announced a lower opening forecast for this coming season to $5.95-$6.05.

Fonterra CEO Theo Spierings says lower forecast Farmgate Milk Price is due to continued softening of commodity prices.

“The Global Dairy Trade trade weighted index has declined 20.3 per cent since our last Farmgate Milk Price forecast of $6.35 in April.” 

“Dairy production levels in the US and Europe are high, while we continue to have higher-than-normal production levels from New Zealand. All this is occurring at a time of heightened uncertainties in global markets.”

With the softening of global commodity prices, operating earnings are expected to be marginally ahead of 2011.

Fonterra Chairman Sir Henry van der Heyden says the opening forecast for 2012/13 reflected a realistic outlook by the board towards global dairy markets over the coming season.

“There’s a lot of milk out there and prices have softened.”

“We think that supply and demand should move more into balance later in 2012 which may help ease the downward pressure on prices.

“However, there is no consensus among outside experts on how soon we can expect to see prices recover so it is important that we give our best possible estimates to farmers so they can plan accordingly.”

The co-operative has also set the Fair Value Share (FVS) price for the 2012/13 season at $4.52 per share, the same level as in the current season.

The updated forecast payout range for this year comprises a lower forecast Farmgate Milk Price of $6.05 per kgMS and a forecast net profit after tax range of $570-720million, equating to 40-50 cents per share.

As a consequence, Fonterra forecasts that a 100 per cent share-backed farmer will earn on average in the range $6.45-$6.55 per kgMS before retentions.

For the new 2012/13 season and financial year, Fonterra is forecasting a Farmgate Milk Price of $5.50 per kgMS plus a forecast net profit after tax range of 45-55 cents per share. This means Fonterra is forecasting a 100 per cent share-backed farmer will earn on average in the range of $5.95-$6.05 per kgMS before retentions.