Fonterra has cut its payout forecast for the current 2011/12 season by 15 cents to NZ$6.75 - NZ$6.85 per kilogram of milksolids due to the high New Zealand dollar, strong global milk production, and global economic uncertainty.
It says dairy commodity prices are likely to remain under pressure through to mid-2012.
The revised forecast comprises a lower Fonterra Farmgate Milk Price of NZ$6.35 per kg milksolids, down from NZ$6.50. The season’s Distributable Profit range forecast of NZ$570–720 million, equating to 40-50 cents per share, remains unchanged, the co-operative dairy group said in a media release.
Fonterra is required to consider its Farmgate Milk Price every quarter as a condition of the Dairy Industry Restructuring Act (DIRA).
Fonterra Chairman 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,” van der Heyden said.
Overall, the GDT-Trade Weighted Index was down 5.7 per cent since December 13, 2011, when the forecast of NZ$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's decision to lower the Fonterra Farmgate Milk Price forecast.
Fonterra 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 US and Europe. International milk powder demand, however, currently appears robust which should help offset the impact of the stronger milk supply growth," Spierings said.
“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," he said.
“We think dairy commodity prices are likely to remain under some pressure through to mid-2012."
Fonterra said it would announce its interim results and dividend on March 29 2012.
...after being raised in December
The cut today comes after Fonterra raised its forecast in December by 20 cents to NZ$6.90 - NZ$7.00 per kgMs for a 'fully shared up farmer'.
At the time, CEO Spierings said while exchange rate volatility remained, "the impact on the Fonterra Farmgate Milk Price becomes less further into the season as the proportion of foreign exchange hedging increases".