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.
The payout forecast range for the 2012-13 season now is $5.90 - $6.00 before retentions for a fully shared up farmer.
This includes a hforecast Farmgate Milk Price of $5.50/kgMS, up from $5.25 on the previous forecast. It is forecasting a net profit after tax range of 40-50 cents per share, consistent with the recent Fonterra Shareholders' Fund Offer prospectus.
The co-op has also announced a 40 cent increase in advance rate payments to farmers.
Fonterra is required to consider its Farmgate Milk Price every quarter as a condition of the Dairy Industry Restructuring Act (DIRA).
Fonterra chairman Henry van der Heyden says after considering farmer shareholders' cash flow requirements, and the strength of the cooperative's balance sheet after the launch of TAF, the board had also decided to lift advance rate payments to farmer shareholders.
"The immediate effect of this decision is that our farmers will have more money flowing into their bank accounts from late January when they are paid for the previous month, and that will help them with their cashflows.
"Between 1 August and the most recent GlobalDairyTrade (GDT) trading event, prices have increased by an average 17.7 per cent. While there was a drop at last week's GDT event, it has not changed our overall commodity price forecasts."
Chief executive Theo Spierings says Fonterra's strong balance sheet meant that from a cash flow point of view the cooperative was in a position to increase payments to farmers over the next few months without any significant risk to its financial stability.
While the outlook for any movements in the New Zealand dollar exchange rate were neutral, the impact of weather events in other markets were likely to support the lift in forecast Farmgate Milk Price.
"There has been a persistent, serious drought in the United States. That has pushed up the price of grain, which in turn affects dairy production. There are also concerns about drought in the Ukraine and Russia. In South America, extreme wetness in parts of Brazil and Argentina could also depress wheat production," says Spierings.
"Given current global conditions, our forecasting anticipates global dairy prices are likely to move higher in the first half of 2013."
