Fonterra chair Wilson says dairy prices now at level to hit milk price forecast

Fonterra Cooperative Group [NZX: FCG] chairman John Wilson said dairy prices need to be trading around the level of this week's GlobalDairyTrade auction to hit the current seasonal forecast of $4.70 per kilogram of milksolids.

Wilson told dairy farmers at a Federated Farmers Dairy Council meeting in Taupo that he was pleased with the uplift in whole milk powder, the nation's key export product, which has risen by more than a third over the past two GDT auctions on lower volumes.

Auckland-based Fonterra is due to update its forecast farmgate milk price, which acts a benchmark for the industry, following a board meeting next Wednesday and Wilson said at this stage he "had no idea" what that update will be.

Some agricultural economists have upgraded their forecasts in the wake of the last two GDT auctions though most are picking a better opening forecast for the 2015/2016 season than a significant shift in this season's due to uncertainty around the drought conditions being experienced in parts of the South Island.

ASB raised its forecast 30 cents to $5 /kgMS, the ANZ says there could be upside to its $4.70/kgMS forecast for this season and that its $5.75/kgMS projection for next season may head to $6/kgMS depending on weather conditions, while Westpac has held its forecast of $5/kgMS for this season and $6.40/kgMS for the next. Westpac said there are suggestions Fonterra could upgrade the price to at least $5/kgMS.

Wilson said it wasn't that long ago that market commentators were saying the forecast would need to be lowered and they're now saying it should be lifted.

He said the current market volatility made forecasting difficult, and the drought made that even harder.

Wilson was also questioned about delivering on the promise the dairy cooperative would lift the level of dividends for shareholders. Last season's payout was a record $8.40/kgMS plus a 10 cent dividend while the dividend for this season is forecast at 25 cents to 35 cents per share meaning a total payout for farmer shareholders of between $4.95 to $5.05.

Former Federated Farmers Dairy chairman Willy Leferink said there was dissatisfaction from shareholders over last year's dividend and it needed to be lifted to give farmers confidence they would get a good return from investing their money in the cooperative.

Fonterra's Wilson said the aim was to drive up the dividend over time which is decided by the amount of money left over once the milk price was determined and retentions taken out.

"Within that bucket there is huge volatility - that's what it is all about, the impact that is having on the milk price and therefore the dividend," he said.

(BusinessDesk)