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Fonterra chairman John Wilson says dairy prices are expected to firm up early next year.
Fonterra chairman John Wilson says dairy prices are expected to firm up early next year.
Speaking last week at the release of the co-op's first quarter results, Wilson said inventory levels in New Zealand are low and China is re-entering the market. This should help push prices up in the new year, he adds.
Last week's GlobalDairyTrade (GDT) auction saw the price index down 7.9%, its third consecutive drop. Worryingly, milk powder prices tumbled: whole milk powder was down 11% to US$2148/tonne and skim milk powder down 8% to US$1851/t.
Fonterra said it was increasing its forecast earnings per share range for the current financial year to 45-55 cents. With a forecast farmgate milk price of $4.60/kgMS this lifts the total available for payout to $5.05-5.15/kgMS and would currently equate to a total forecast cash payout of $4.95-5.00 /kgMS after retentions.
The co-op also said it was increasing the rate at which farmers are paid the cooperative support of 50c/kgSM, with the total amount paid up to December rising from 18 cents to 25 cents.
Wilson says performance in the period August 1 – October 31, 2015 built on the strong second half of the 2015 financial year.
"While it is tough on farms due to low global milk prices, farmers will welcome the ongoing improvement in Fonterra's performance delivering increased returns.
"Performance is well ahead of last year and we are hitting our targets on gross margins and operating and capital expenses.
"At the same time, [business overhaul] is generating significant cash savings. We are... therefore able to lift our forecast earnings per share range."
At this stage of the season, based on the dividend policy, management would recommend at the end of the financial year an annual dividend of 35-40 cents per share, subject to board approval. This would equate to a total forecast cash payout of $4.95-5.00/kgMS.
"The performance and business [overhaul] savings mean we are also able to increase the December co-operative support payment and those payments will now be completed by April, giving farmers access to more of that support earlier," says Wilson.
Fonterra is still forecasting a 5% reduction in milk collections in NZ for the current season, equivalent to around 150,000 MT of whole milk powder.
Since August the co-op has reduced the amount of product it expects to offer in the GDT auction during the year by 146,000 MT.
"In addition, more product is being sold through bilateral customer agreements for a premium on prices achieved on GDT. Ingredients inventory levels for the first quarter are in line with the same period last year," says chief executive Theo Spierings.
"We are benefiting from the investment in new plants in NZ, which is improving our manufacturing options and reducing peak costs. Our strategy is moving greater volumes of milk into higher-returning products to take advantage of improved prices relative to whole milk powder."
Board remit a distraction
Matamata farmer Adrienne Wilcock says she is opposing the remit to reduce the size of Fonterra's board.
Wilcock, who is chairman of AgRecovery Foundation, says it's "another unnecessary distraction" for the co-op.
"I'm extremely concerned how this will play out if the motion is passed or is supported by a good number of shareholders," she told Dairy News.
"I fail to see how the board can function effectively."
Wilcock says she supports having a re-look at governance but it has to be done in a proper way; with robust discussion among shareholders.
On board composition, she says there needs to be discussion on what's too many and what's too few.
While any shareholder can put a remit before the AGM, Wilcock questions whether Colin Armer and Greg Gent went about it the right way.
She points out the board is reviewing the governance structure but other important issues like the WPC80 false alarm and low payouts took precedence.
Wilcock and husband Warwick milk 480 cows.
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