Divestment means Fonterra can focus on its strengths
OPINION: Fonterra's board has certainly presented us, as shareholders, with a major issue to consider.
Major milk processors Fonterra and Open Country Dairy are signalling a forecast payout of well over $7/kgMS for the season.
Last week, Fonterra lifted its forecast milk price by 25c to a range of $7 to $7.60/kgMS. OCD has announced a range of $7.30 to $7.60/kgMS for December and January. And for February to May next year the independent processor will pay suppliers $7 to $7.30/kgMS.
Whole milk powder (WMP) prices, a key driver of the milk price, have hit their highest level since December 2016, reflecting a global dairy market that is tipped slightly in favour of demand.
Fonterra shareholders council chairman James Barron says the lift in the forecast price will give farmers some confidence going into Christmas.
“The farm gate milk price is at a sweet spot,” he told Rural News.
OCD chief executive Steve Koekemoer told its suppliers that stronger pricing being received in market and the foreign exchange now starting to flow through have resulted in the further upside.
“All settlement periods have stepped up, with the biggest moves being the November and January periods.
“You will notice that all our forward periods are now in the $7 range as we gain more confidence in the supply/demand for the balance of the season.”
For Fonterra farmers, a positive first quarter result will also help boost confidence.
Barron says farmers are happy to see the co-op deliver under its new strategy of a triple bottom line: healthy people, healthy environment and healthy business.
However, he points out that challenges loom on the horizon: weaker Chinese economy, unrest in Hong Kong and Chile and the pressure on profit margins of value added products due to high milk prices.
Federated Farmers vice president Andrew Hoggard says it’s still early days, and the proof of Fonterra’s turnaround will be if they get a dividend again at the end of this financial year.
Hoggard says farmer shareholders will be happy to see the co-op move in the right direction.
“I mean, they weren’t happy when our co-op was moving in the wrong direction,” he told Rural News.
Fonterra announced a positive first quarter result, achieving a gross margin of $740 million, up from $646m last year.
Operating expenditure is down by $104m, and debt is reduced by $595m compared to same period last year.
Chief executive Miles Hurrell says the cooperative has made good progress moving to its new strategy and has had a strong first quarter.
