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Fonterra Lowers 2012 Milk Price Payout Forecast

17:04PM Mar 13, 2012

Dairy giant cites declining commodity prices, higher levels of global milk production, uncertainties in international markets and a stronger New Zealand dollar.

Source: Fonterra news release
New Zealand-based dairy cooperative Fonterra has announced a revised payout forecast for the 2011/12 season of $6.75-$6.85, for a fully shared up farmer, 15 cents down on the previous forecast.
The revised forecast comprises a lower Fonterra Farmgate Milk Price of $6.35 per kg milksolids, down from $6.50. The season's Distributable Profit range forecast of NZD 570-720 million, equating to 40-50 cents per share remains unchanged.
Fonterra is required to consider its Farmgate Milk Price every quarter as a condition of the Dairy Industry Restructuring Act (DIRA).
Fonterra Chairman Sir Henry van der Heyden said the lower Farmgate Milk Price forecast reflected declining commodity prices and a stronger New Zealand dollar. “We've had price declines in the five out of the last six Global Dairy Trade (GDT) trading events," he said.
Fonterra is one of the world’s leading dairy suppliers.
Overall, the GDT-Trade Weighted Index is down 5.7 per cent since Dec. 13, 2011, when the forecast of $6.50 per kgMS was announced.
Van der Heyden said 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.
Chief Executive Theo Spierings said the trends were 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 U.S. and Europe,” Spierings said. “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,” added Spierings.
Fonterra will announce its interim results and dividend on March 29.