Expert Says Fonterra Backing Current Strategy With New CEO Appointment
The appointment of Richard Allen as Fonterra's new chief executive signals execution, not strategy, according to agribusiness expert Dr Nic Lees.
The co-op has lifted its 2018-19 milk forecast price to $6.30-$6.60/kgMS, up from $6.00-$6.30 range announced in December.
However, the co-op revised its forecast earnings down to 15-25 cents per share, from 25-35c/share.
Chairman John Monaghan says the improved milk price forecast reflects the increases in global milk prices over the last quarter.
“Since our last milk price update in December, global demand has strengthened,” he says.
This is driven predominantly by stronger demand from Asia, including Greater China. The European Union’s (EU) intervention stocks of Skim Milk Powder (SMP) have also now cleared for the season and, as a result, Fonterra expects demand for SMP to be strong.
“Global supply remains above last season’s levels, but growth has slowed due to challenging weather conditions in some of the world’s largest milk producing regions – in particular, Australia’s milk production is forecast to be down 5-7% on last season and the EU’s growth has slowed and is now forecast to be less than 1% up on last year.
“Here in New Zealand, due to hot, dry weather since the start of the year, we’ve revised our Co-op’s forecast milk collections down from 1,550 million kgMS to 1,530 million kgMS. This is up 2% on last year.
“We’ve seen the positive impact of this supply-demand picture on a couple of fronts – the number of bidders and, more importantly, prices for the reference products that make up our milk price have increased over the last six GDT events.
“We expect demand to remain stronger relative to supply for the rest of the season.”
The DIRA milk price and the advance rate paid to farmers have been set off a milk price of $6.45 per kgMS.
Fonterra is also advising its farmers and unit holders that it will not be paying an interim dividend. A decision on any full year dividend can only be made at the end of the financial year, and will depend on the co-op’s full year earnings and balance sheet position.
Monaghan says that, while the milk price is strong, the co-op’s earnings performance is not satisfactory and the co-op needs to deliver farmers and unit holders a respectable return on their investment.
The Board is making solid progress with a full review of the strategy which includes a review of the dividend policy, he says.
