Divestment means Fonterra can focus on its strengths
OPINION: Fonterra's board has certainly presented us, as shareholders, with a major issue to consider.
The revised forecast comprises a farmgate milk price of $6.35/kgMS, down from $6.50/kgMS. The season's distributable profit range forecast of $570 million – $720m, equating to 40-50ckgMS/share remains unchanged.
Fonterra chairman Henry van der Heyden notes price declines in the five out of the last six Global Dairy Trade (GDT) trading events.
Overall, the GDT-Trade Weighted Index is down 5.7% since December 13 2011 when the forecast of $6.50/kgMS was announced.
He says the New Zealand dollar's continuing strength, higher levels of global milk production, and uncertainties in international markets led to the board decision to lower the Fonterra farmgate milk price forecast.
Fonterra chief executive Theo Spierings says the trends are indicating for stronger global production continuing into 2012.
"While we have had a strong start to the season in New Zealand, with record milk flows, we are also seeing higher milk production levels in the US and Europe.
"International milk powder demand, however, currently appears robust which should help offset the impact of the stronger milk supply growth.
"In the past few weeks, global markets seem to be reacting to the ongoing economic difficulties in Greece, the potential for conflict in the Middle East and China's reduced growth forecast. These events appear to be having a negative influence on most commodity prices.
"We think dairy commodity prices are likely to remain under some pressure through to mid-2012," says Spierings.
Fonterra will announce its interim results and dividend on March 29.
