increase font size
John Wilson.
Volatility in earnings is the result of prices staying high for milk-price products, says Fonterra chairman John Wilson.
High prices for those products also influence margins in the co-op’s food service business.
Fonterra has revised the forecast dividend range for the full 2017-18 year from 25-35c per share down to 15-20c per share.
Meanwhile it has revised this year’s farmgate milk price upwards by 20 cents to $6.75/kgMS. The forecast total cash payout for farmers increases to $6.90-$6.95/kgMS, the third highest payout this decade.
Wilson says the forecast farmgate milk price is good news for farmers but earnings are being hit by volatility.
“There are two critical elements to it,” Wilson told Dairy News.
“One is the prices moving between our milk price products and our non-milk price products – whole milk powder, butter, skim milk powder and anhydrous milk fat in particularly relative to cheeses, caseins and those products.
“It is clear with WMP, butter and AMF being strong that goes to milk price rather than earnings.”
The second element is that prices of products which go into the co-op’s food service business are staying a lot higher than historically. That decreases the margin in the business -- the advance ingredients business, consumer and food service.
Wilson says previously they had talked about a possible weakening heading into this time of year because more production was expected out of Europe.
“What we have seen is the market has stayed very balanced. And we have seen a strengthening in particular across the fat portfolio.
“That has meant we have lifted $6.55 - $6.65/kgMS. The challenge with that is we are getting this ongoing volatility in our earnings, to the frustration of our unit holders and shareholders.”
Ongoing volatility in earnings doesn’t reflect on internal business performance, he says. It reflects the significant shift in stream returns and significant lifts in pricing “which can have an impact on our ability to attract margins or maintain growth margins in our business particularly late in the season.”
Wilson also says higher milk price puts pressure on Fonterra’s earnings in a year which is already proving challenging due to the payment to Danone and the impairment of the co-operative’s Beingmate investment.
OPINION: There is zero chance that someone who joined Fonterra as a lobbyist, then served as a general manager of Fonterra's nutrient management programme, and sat on the board of Export NZ, a division of lobbyist group Business New Zealand, doesn't understand that local butter (and milk and cheese) prices are set by the international commodity price.
Kiwis love their butter, and that's great because New Zealand produces some of the best butter in the world. But when the price of butter goes up, it's tough for some, particularly when many other grocery staples have also gone up and the heat goes on co-operative Fonterra, the country's main butter maker. Here the co-op explains why butter prices are so high right now.
An A$2 billion bid for Fonterra's Oceania business would be great news, according to Forsyth Barr senior analyst, equities, Matt Montgomerie.
The world's largest dairy company may be in pole position to acquire Fonterra's Australian assets.
Over 85% of Fonterra farmer suppliers will be eligible for customer funding up to $1,500 for solutions designed to drive on-farm efficiency gains and reduce emissions intensity.
August 6 marks Farm Worker Appreciation Day, a moment to recognise the dedication and hard mahi of dairy farm workers across Aotearoa - and DairyNZ is taking the opportunity to celebrate the skilled teams working on its two research farms.
OPINION: The Government has been seeking industry feedback on its proposed amendments to a range of Resource Management Act (RMA) national direction instruments.
A Taupo company says it's the first to bring CO₂-powered water heating technology to New Zealand dairy sheds, helping farmers cut energy costs by up to 85%.
Waikato is home to a diverse range of lakes, and experts say they urgently need better management and restoration.
Federated Farmers is renewing its call for Greenpeace to be stripped of its charitable status immediately, following the activist group's latest publicity stunt.
Kiwis love their butter, and that's great because New Zealand produces some of the best butter in the world. But when the price of butter goes up, it's tough for some, particularly when many other grocery staples have also gone up and the heat goes on co-operative Fonterra, the country's main butter maker. Here the co-op explains why butter prices are so high right now.
OPINION: Sydney has a $12 million milk disposal problem.
OPINION: Canterbury milk processor Synlait's recovery seems to have hit another snag.
