New Zealand dairy giant attributes lower prices to high global milk production and heightened uncertainties in world markets.
In response to softening global dairy commodity prices, New Zealand dairy leader Fonterra today announced a 30-cent decrease in its forecast Farmgate Milk Price for the current season, to $6.05 per kilogram of milksolids (kgMS), The forecast Net Profit after Tax range is unchanged at 40-50 cents a share, meaning a forecast Payout range before retentions is $6.45-$6.55.
At the same time, Fonterra announced a lower opening forecast payout for the coming 2012-13 season, which begins June 1, 2012, reflecting an outlook for higher dairy production around the world flowing through to lower international dairy prices. The opening forecast Payout range before retentions is $5.95-$6.05, comprising an opening forecast Farmgate Milk Price of $5.50 per kgMS and a forecast Net Profit after Tax range of 45-55 cents per share.
The cooperative has also set the Fair Value Share (FVS) price for the 2012/13 season at $4.52 per share, the same level as in the current season.
2011-12 forecast payout range
The updated forecast Payout range for this year comprises a lower forecast Farmgate Milk Price of $6.05 per kgMS and a forecast Net Profit after Tax range of $570-720 million, equating to 40-50 cents per share.
As a consequence, Fonterra forecasts that a 100 per cent share-backed farmer will earn on average in the range $6.45-$6.55 per kgMS before retentions.
CEO Theo Spierings said the lower forecast Farmgate Milk Price was due to continued softening of commodity prices.
"The Global Dairy Trade trade-weighted index has declined 20.3% since our last Farmgate Milk Price forecast of $6.35 in April," said Spierings. "Dairy production levels in the U.S. and Europe are high, while we continue to have higher-than-normal production levels from New Zealand. All this is occurring at a time of heightened uncertainties in global markets."
Spierings said with the softening of global commodity prices, operating earnings were expected to be marginally ahead of 2011.
2012-13 opening forecast payout
For the new 2012/13 season and financial year, Fonterra is forecasting a Farmgate Milk Price of $5.50 per kgMS plus a forecast Net Profit after Tax range of 45-55 cents per share. This means Fonterra is forecasting that a 100 per cent share-backed farmer will earn on average in the range of $5.95-$6.05 per kgMS before retentions.
Fonterra Chairman Sir Henry van der Heyden said the opening forecast for 2012/13 reflected a realistic outlook by the Board toward global dairy markets over the coming season.
"There's a lot of milk out there and prices have softened," said Sir Henry. "We think that supply and demand should move more into balance later in 2012, which may help ease the downward pressure on prices. However, there is no consensus among outside experts on how soon we can expect to see prices recover, so it is important that we give our best possible estimates to farmers so they can plan accordingly."
Note: Currency is New Zealand dollars unless otherwise stated.