UPDATED: Fonterra stands by forecast payout

LATEST: Fonterra forecast: is no news, good news?

Fonterra [NZX: FCG] is maintaining its low forecast payout to its farmer shareholders for this season, in spite of whole milk powder prices recovering over the past two months.This morning the world's biggest dairy exporter confirmed it is standing by it forecast farmgate milk price of $4.70 per kilogram of milk solids (kg/MS).

Combined with its unchanged dividend range of between 25-35c per share, this amounts to a forecast total cash payout of $4.95-5.05 for the current season.

Fonterra is required to review its forecast farmgate milk price every quarter as a condition of the Dairy Industry Restructuring Act (DIRA) 2001.

“Since December, GDT [GlobalDairyTrade] prices for whole milk powder have increased 45% and skim milk powder prices have increased 13%,” chairman John Wilson says in a statement. 

“There continues to be significant volatility in international commodity prices. New Zealand volumes are down, with continued uncertainty in milk production due to climatic conditions in New Zealand with droughts in Canterbury, Marlborough, Central Otago and North Otago. Today’s forecast reflects the board and management’s best estimates at this time.”

WMP prices rose 13.7 per cent in the latest GDT auction to $US3272 per tonne but US$3500 per tonne is what is required in the second quarter to maintain the forecast, Fonterra chief financial officer Lukas Paravacini said in a statement.

“We’re getting very close and we’ll see in the next few GDTs how strong that turnaround in sentiment is going to be but we are well into the season and a lot of our milk is already contracted,” he said.

The New Zealand dollar dropped about 10 basis points immediately after the announcement to 75.39USc and was recently trading at 75.43USc.

Last week, ASB raised its forecast by 30c to $5 kg/MS, while ANZ stood by its $4.70 kg/MS forecast for this season.

Meanwhile, Westpac last week held its forecast of $5 kg/MS.

Westpac senior economist Michael Gordon said its forecast of a $5.00 kg/MS farmgate milk price for the end of the season requires further modest price increases at the next few GlobalDairyTrade auctions.

“We're reasonably confident that this will happen, as drought conditions in New Zealand put a squeeze on the global milk supply.”

There are two more GDT auctions before Fonterra releases its first-half results and Mr Gordon said an upgrade may be likely then.

Units of the Fonterra Shareholders' Fund, which are entitled to the dividends on the exporter's shares, rose 0.3 percent to $6, and have slipped 0.5 percent this year.