Eroding share of milk worries Fonterra shareholders
Fonterra shareholders are concerned with a further decline in the co-op’s share of milk collected in New Zealand.
Its opening advance (payable 20 September) will be $4.80kg/MS for all milk collected from August 1, 2013.
The Hokitika-based dairy cooperative also confirmed the forecast pay-out for this season of $6 to $6.30kg/MS excluding retentions. The advance rate payable June 20, 2013 has been approved at $5.20kg/MS.
Chief executive Rod Quin says the forward view for the dairy market is relatively strong, even with the recent decline from the highs of six weeks ago. The strong outlook is being driven by ongoing firm demand and the expected shortfall of milk supply from key exporting markets.
"The market is showing signs of supply constraints and higher than average prices are expected throughout next season," Quin says. "With the market particularly volatile as a result of the drought, we expect prices to be higher at the start of the season and remain relatively high throughout."
Quin says the high value of the New Zealand dollar remains an issue. It is contributing to the volatility of the dairy export market and impacts on the timing and value of final contracts under negotiation for the 2012/13 season. The value of dollar will remain an issue for exporters in 2013/14, making forecasting a real challenge.
Westland's strategic move to the higher value nutritionals market is paying dividends, Quin says. The cooperative has enjoyed an uplift in orders, which is a positive sign that the strategy would pay-off for the company and reduce Westland's reliance on highly volatile bulk commodities markets.
Westland also recently announced it was inviting shareholder/suppliers to continue to supply through the traditional off season. Quin says the option was made possible because of changes in the way Westland maintains and operates its plant.
"We now do more preventative maintenance, which means parts of the plant are available all year round. This also allows us to make money off low volumes of milk supply, which wasn't previously possible."
There is no obligation for shareholders to supply through the off-season months. However, Quin says, it gives farmers more flexibility around income streams by providing the option to supply milk year-round if it works for their farming business.
Minimum milk volumes per pick-up will be around 2000 litres, which might be from 1-3 days' worth of milking. Although shareholders have only recently been advised of the option, some West Coast and Canterbury suppliers have already signalled their intention to supply to late into June and some are planning to milk throughout the usual stand-down period between seasons.
Quin noted the time between ceasing collection and starting up was only six weeks last season, so this option will be a natural progression for many farmers and would result in an increase in the total amount of pay-out for those farmers.
