Fonterra forecast good news

Fonterra's new forecast of an increased milk pay-out is very good news and reflects market demand for high quality, safe food, says Rick Powdrell, Bay of Plenty Federated Farmers provincial president.


'Because of the problems Fonterra has been through recently it might seem strange to say the improved forecast is about safe food as well as demand, but I think it shows the strength of Fonterra's reputation. After all, it was Fonterra which discovered the bacterial contamination and outed itself over it,” says Rick.

Yesterday the Fonterra Board of Directors announced a revised Farmgate Milk Price forecast of $7.80 per kg/MS for the 2013/14 season – a 30 cent increase, keeping the advance rate at $ 5.50 and the previously estimated dividend at 32 cents per share.

'Fonterra has taken a fair hammering in recent weeks, particularly from some areas of the media, but I think this new forecast shows the world's thirst for food which is growing all the time,” says Rick.

The forecast comes after news in early August that bacteria, which could cause botulism (a potentially fatal paralytic illness), was found in Fonterra infant formula – which was followed with negative media and market reaction to the company and its products around the world.

Fonterra Shareholders' Council chairman Ian Brown agrees the news is good, but given the volatility of the market, he says farmers should to continue to show prudence in their financial planning.

Ian says all of New Zealand will benefit from the announced 30 cent increase in the Fonterra forecast.

'This result shows the strength of demand on the international market for dairy products; and the benefits will flow through New Zealand from farmers increased ability to spend on the inputs required to operate our dairy farms. This is further positive news for farmers, as most farmers are still working through the residual effects of last season's drought.”

Fonterra chairman John Wilson says the higher forecast reflects continuing strong international prices for dairy.

'Current market views support commodity prices remaining at historically high levels longer than previously forecasted. The two most recent GlobalDairyTrade (auction) events have seen prices hold, and significant volumes sold. These factors have contributed to our updated forecast.”

At this early stage in the season, however, there are a number of uncertainties – and that is why there would be no change to the current advance rate announced in July.

'We will provide an update on business performance when we announce our annual result on September 25,r 2013,” says John.

Willy Leferink, Federated Farmers Dairy chairperson, says it's a relief that the immediate financial damage from the recall and market access issues elsewhere, will not dent the New Zealand economy.

'It has been a hellishly tough month for Fonterra but this revision underlines that the fundamentals of the New Zealand dairy industry remain strong.

'With an eye to the future, we've got to accept that we cannot afford a repeat of this month's problems. But right now, this confidence in the dairy industry is a huge relief.

'From the Chicago Mercantile Exchange to Global Dairy Trade, the markets have delivered their own verdict. However, we still have a lot of bridge-building to do and a heck of a lot of things to learn, but learn them we will. We will be back better because we have to be,” says Willy.

'How Fonterra got slammed for being the whistle blower remains a complete mystery to me. For those markets that remain problematic, can we ask them to please trust science and to trust New Zealand official assurances?

Willy says the prices Fonterra is getting for dairy exports reflect the reality that the amount of surplus milk for global export remains wafer thin. 'Two weeks after Fonterra initiated its precautionary recall, US analyst Robin Schmahl commented: 'It certainly has caused concern for the world dairy industry, and Fonterra in particular, with inquiries being conducted. However, it was virtually a non-issue in the milk futures market”.”

'Of course this is a forecast and we are coming off a stunning winter, which now has many farmers scratching their head about what will happen next. Last season's drought and the one a few years' back really underscore why water storage is infrastructure of national significance. We've got to get on with it.

'So these numbers add the cream on top. It is a cream that is some way off from being in the bank, so farmers need to budget conservatively in order to knock off the debt built up over the drought,” says Willy.

'To me, Mark Twain provides the best reply to the great Kiwi clobbering machine that seemed to delight in our earlier problems: 'the rumours of my death have been somewhat exaggerated”.

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