CFO believes long-term outlook is strong despite recent declines
Fonterra Co-Operative Group Ltd. is upbeat on the longer-term outlook for world dairy prices despite their continuing volatility, believing the worst of the declines may be over.
“We are very bullish,” the dairy giant’s chief financial officer, Lukas Paravicini, said in an interview Thursday. “Clearly, the fundamentals are very positive in terms of long-term protein needs and supply, and not just for China but also India, Africa, South East Asia.”
While he expects an improvement, Mr. Paravicini acknowledged farmers would face continuing difficulty in the short-term.
Global dairy prices have dropped by about 50% over the past year, as world supply has risen and China’s stockpiles have increased. Russia’s ban on U.S. and European food imports, including dairy, has also weighed on prices.
Mr. Paravicini said he believed milk prices had touched bottom and that he expected some improvement soon. Among other factors, he said there were signs demand in China was picking up again.
“I think we have seen a turnaround, but the question is when it will trend upwards,” he added. Any increase in dairy prices helps New Zealand, 30% of whose exports are milk related. The country’s agriculture-rich economy has been supported in recent years by surging demand from Asia’s rising middle classes for its dairy exports.
Mr. Paravicini’s optimistic remarks come after Fonterra lowered its forecast payout to its 10,600 farmer shareholders to 4.50 New Zealand dollars (US$3.42) per kilo of milk solids for the 2014-15 season from a prior forecast of NZ$4.70, citing significant volatility in international commodity prices because of oversupply.
The sharply lower payout means that farmers will earn some NZ$6.7 billion less than they did in the prior season.