Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, maintained its forecast milk payout to New Zealand farmers, saying it was confident that “unsustainably low” global prices would continue to improve in 2016.
The Auckland-based company will pay its 10,500 farmer suppliers NZ$4.60 ($3.06) a kilogram of milksolids in the current season ending May 31, it said in a statement Thursday.
Dairy auction prices slumped to a 12-year low in August before stabilizing after Fonterra reduced the amount it sells at auction on waning milk production. The company expects prices will rise next year as a global glut dissipates and Chinese buyers return to the market.
“We support the consensus view in the market that an improvement will take place, but the market remains volatile,” Chairman John Wilson said in the statement. “While there are signs of a recovery, particularly in China, we still need the imbalance between supply and demand to correct.”
Chief Executive Officer Theo Spierings reiterated Nov. 16 that the NZ$4.60 forecast assumed a whole milk powder price of $3,000 per metric ton at GlobalDairyTrade auctions. The price rose to $2,260 at the Dec. 1 auction.
The company last month forecast a full-year dividend of 35 to 40 cents a share, which would increase the total payment to at least NZ$4.95 a kilogram. Its 2014-15 payout of NZ$4.40 per kilogram of milk solids and a dividend of 25 cents was the lowest combined distribution since 2007.
Fonterra said it won’t continue a supportive loan to farmers for production for milk collected after Dec. 31, but will monitor the need for further support if market conditions changed later in the season.
Falling dairy farm incomes have curbed confidence and spending, hurting economic growth. Central bank Governor Graeme Wheeler is tipped to cut interest rates for a fourth time this year Thursday, according to 15 of 18 economists in a Bloomberg survey.