increase font size
John Wilson claims the loans available to shared-up farmers shows the co-op is optimistic about prices bouncing back.
The Fonterra Cooperative Support ‘loan’ to be made available to shared-up farmers shows the co-op is optimistic prices will come back, Fonterra chairman John Wilson says.
“We don’t believe that will be in the too distant future so we are providing a buffer by dragging forward future higher milk prices to this period we are in now,” Wilson says.
Fonterra says it is supporting farmers in a simple manner with simple documentation and process, “to assist our farmers to buffer what is undoubtedly extreme volatility that is knocking [them] around right now; we are uniquely placed to be able to provide that support over this time.”
All Fonterra share-backed farmers can apply for the support of 50 cents per shared-up milk solids for production for the season. This payment, interest free for two years, will be repayable when the farmgate milk price or advance rate goes above $6/kgMS. A first payment will be made in October for June-December and will continue until May. Payments will total 50c cents per shared-up milk solids over the season but will be phased from October.
It will cost about $430 million and will be funded by one-off savings generated by changes the business is making – its ‘transformation project’ -- such as improving working capital.
Fonterra chief executive Theo Spierings says global demographics long term still show a strong position for dairy. Fonterra still sees the ‘average’ milk price rising to $3500/t (whole milk powder) and, depending on where the NZ$ sits, $6-$6.25/kgMS as the normal level.
The co-op still expects an uplift throughout the season and though $3500/t levels “will take a while, our estimate is it will take 6-12 months,” Spierings says.
Wilson says looking at the history of volatility cycles they are comfortable with interest free lending on the Fonterra Cooperative Support over the next two years. “If required beyond that we would impose a wholesale bank rate.”
Spierings claims dairy prices are way below intervention levels in Europe and “already below the bottom”.
Wilson says these prices are unsustainable for New Zealand farmers but, increasingly, prices globally are also unsustainable in other world regions. “They are now below intervention prices. While there is demand, the reality is we are expecting milk supply will start to tighten over the next quarter to half year.”
Spierings says the loans to farmers will be funded solely by reducing working capital via the transformation programme which will strengthen the balance sheet.
Wilson says the Fonterra Coop Support has been created by one-off gains -- “predominantly working capital gains which strengthen our balance sheet so we are able to use that strength to pass a one-off to our farmers”. “This is different from what is also occurring in our transformation project which you will see reflected in our dividend announcement for the year ahead in September.”
Wilson says there are strong communication levels between Fonterra and the banks and strong support from banks for farmers. “We’ve got an opportunity to very simply provide support for our farmers which reflects the volatility, which reflects how low these prices are vs where they have been historically, and also the fact they are at an unsustainably low point.
“This is putting something in place which is simple to do but which leverages off the strength of our cooperative.”
A Fonterra Co-operative Support schedule will be made available as part of the application process. The programme will be reviewed in December.
Foreign Affairs Minister Winston Peters has joined the debate around the proposed sale of Fonterra’s consumer and related businesses, demanding answers from the co-operative around its milk supply deal with the buyer, Lactalis.
OPINION: Farmer shareholders of two of New Zealand's largest co-operatives have an important decision to make this month and what they decide could change the landscape of the dairy and meat sectors in New Zealand.
OPINION: As CEO of the Dairy Board in the 1980s I was fortunate to work with a team of experienced and capable executives who made most of the brand investments that created the international consumer business Fonterra inherited. Soprole in Chile was the largest, but there were more than 20 countries where consumer marketing companies were established and Anchor and other brands were successfully launched.
Fonterra has delivered a fifth straight year of record organic milk price for farmer suppliers.
Fonterra says favourable weather conditions supporting pasture growth is boosting milk production.
Like many manufacturers around the world, European agricultural machinery and tractor manufacturers are currently operating in a difficult market environment. But they are heading to the world’s largest agricultural machinery event in Hanover next month with a degree of cautious optimism.
Established in 2021, the John Deere Technician of the Year Awards champion the important contribution parts and service technicians make to the Australian and New Zealand agriculture, construction and forestry industries.
Beef + Lamb New Zealand (B+LNZ) is calling on farmers from all regions to take part in the final season of the Sheep Poo Study aiming to build a clearer picture of how facial eczema (FE) affects farms across New Zealand.
New Zealand is closer to eradicating bovine TB than ever before, but possums remain a threat, says Beef + Lamb New Zealand.
Foreign Affairs Minister Winston Peters has joined the debate around the proposed sale of Fonterra’s consumer and related businesses, demanding answers from the co-operative around its milk supply deal with the buyer, Lactalis.
The ACT Party says media reports that global dairy giant Nestle has withdrawn from the Dairy Methane Action Alliance shows why New Zealand needs to rethink its approach to climate.
OPINION: Ageing lefty Chris Trotter reckons that the decision to delay recognition of Palestinian statehood is more than just a fit…
OPINION: A mate of yours truly recently met someone at a BBQ who works at a big consulting firm who spent…
