Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
Fonterra shaved off 35c, taking the milk price for the 2017-18 season from $6.75 to $6.40/kgMS.
But Penny says ASB is sticking with its $6.50/kgMS forecast. He points to Fonterra chairman John Wilson saying the lower forecast reflects a “prudent approach” to ongoing volatility in the global dairy market.
“For us you can see they have erred on the side of caution,” Penny told Dairy News.
“Later on they talk about how they have actually lifted the advance payments to farmers. So on the one hand they are saying they are being conservative, but on the other they are showing actually there’s a bit more underlying confidence by showing they are happy to lift those advanced payments.
“Those advanced payments are fairly higher than what farmers would have been receiving under the $6.75/kgMS milk price forecast. So you can see there is some underlying confidence although they are being a bit careful by cutting back to $6.40/kgMS.”
He says ASB is calling it where they see it, which is slightly higher than Fonterra.
Announcing the revised forecast, Wilson said the GlobalDairyTrade price for whole milk powder is a big influencer of the farmgate milk price and it has declined by almost 10% since August 1, 2017.
The Danone $180 million judgment against Fonterra had no influence on the forecast milk price, says Wilson. (Fonterra had already revised its forecast earnings per share range by 10c down to 35 to 45 cents.)
Strong production in Europe and continued high levels of EU intervention stockpiles of skim milk powder are driving the forecast. Demand for dairy remains strong, particularly in China, other parts of Asia and Latin America “This downward pressure on global prices is being partly offset by the lower NZ-US dollar exchange rate,” says Wilson.
“Our strong financial position, customer order book at this point in the year, and confidence in demand means that the board is able to increase the payments made in January by 10c/kgMS and will hold the advance rate through to the payments in May.
“In effect, our farmers will receive equal or higher payments for their milk over this period than were scheduled under the previous $6.75 milk price.”
Due to weather Fonterra reduced its NZ milk collection forecast by 1% to 1525 million kgMS – the same volume as last season.
