Dairy giant Fonterra increased its 2017/18 forecast farmgate milk price by 20 cents to $6.75 per kg of milk solids but the forecast dividend range for the full year to between 15 and 20 cents per share.
Fonterra also announced an opening forecast of $7 per kg/MS for the next season for milk supplied between mid this year to mid 2019.
Federated Farmers and the Northland Chamber of Commerce say the increased forecast price was “fantastic” news and hoped the final payout remained at that level or increased further.
A payout of $6.75 per kg/MS will earn Northland dairy farmers $607.5m while $7 will rake in $630m.
An additional 20 cents equates to $18m more for Northland farmers this season.
Federated Farmers Northland dairy chairman Ashley Cullen described the lift in forecast price as “awesome”, saying the industry was heading in the right direction.
“A lot of people are still hurting out there and an extra 20 cents makes a huge difference.”
Cullen was, however, disappointed at an increase in the capacity adjustment charges by 10 cents and a decrease in dividend payout.
All dairy farmers pay 61 cents per kg/MS to Fonterra during peak months from September to January to cover costs of maintaining its factories.
Cullen said the increased forecast price would help farmers put in place safety measures in light of the cattle disease mycoplasma bovis.
The bulk of the milk payout, he said, would be used on debt repayment and deferred maintenance.
Chamber chief executive Tony Collins said the contribution of dairy farmers towards Northland’s Gross Domestic Product (GDP) could not be underestimated.
He said all businesses, including those that supply farm materials and equipment to farmers, would benefit from more than $607m coming into the region.
“That’s fantastic. A sustained period of revenue growth will improve their confidence and it will also provide other people with confidence to invest in Northland.
“Farmers need to keep improving their systems and processes so that when the milk payout is low, they have the capability and skills to manage the situation. Sustainable debt level and staff training is equally important,” Collins said.
Fonterra chairman John Wilson said another lift in forecast price reflected a rise in global dairy prices since the start of the season, especially the strong value of whole milk powder.
There has been continued growth in demand from China and across Asia, he said.
Wilson said an increase in forecast milk collections in New Zealand was due to improved farming conditions in March and April after a challenging spring and summer.
While the latest forecast was good news for farmers who were still recovering after the two years of lower milk prices in 2015 and 2016, he said higher milk prices put pressure on Fonterra’s earnings.
“As a result, we are revising our forecast normalised earnings per share guidance range down to 25-30 cents per share and our forecast dividend range for the full year down to 15-20 cents per share.”
Chief executive Theo Spierings said the earnings challenge that came with higher milk price was compounded by the timing and significance of this particular increase.
“There is always a natural lag in being able to pass through an increase in our input costs. But this increase has been both rapid and late in the year, making it difficult for these higher costs to flow through into our sales for this financial year.
The final payout will be announced in September.
* September 2017 – final milk payout of $6.52/kgMS for 2016/17
* December 2017 – forecast price fell 35 cents to $6.40
* March 2018 – forecast price rose back up $6.55
* May 2018 – lift of 20 cents takes it to $6.75
By: Imran Ali
Source: NZ Herald