Fonterra announces an opening forecast Farmgate Milk Price of NZ$7 per kgMS for the 2013/14 season - up NZ$1.20 on the current season

Fonterra announces an opening forecast Farmgate Milk Price of NZ$7 per kgMS for the 2013/14 season - up NZ$1.20 on the current season

Fonterra Co-operative Group has announced an opening forecast Farmgate Milk Price of NZ$7 per kg of milk solids for the 2013/14 season - up NZ$1.20 on the current season.

In addition, it announced a higher Advance Rate schedule, with an opening rate of NZ$5 per kgMS, reflecting the higher forecast milk price for next season.

Fonterra also confirmed it is holding its current milk price for the 2012/13 season at NZ$5.80 per kgMS and a forecast dividend of NZ32 cents a share, making for a cash payout of NZ$6.12 for a fully shared-up farmer.

The board will announce its forecast cash payout for the 2013/14 season, which is comprised of the forecast milk price and dividend, in July after Fonterra's budget is completed and approved.

Chairman John Wilson said the higher forecast milk price for the new season reflected continuing strong international prices for dairy.

"The general consensus is that dairy commodity prices have peaked but will continue at or near current levels until the fourth quarter of 2013. Most external forecasts point to prices remaining relatively strong through 2014."

Regarding the Advance Rate increase he said: "A stronger forecast Farmgate Milk Price, supported by our improving cash flows and strong balance sheet, means we are able to lift the Advance Rate for the new season to ensure farmers receive higher payments for their milk early in the season.

"A large proportion of our farmer shareholders have experienced drought conditions, which have had a significant impact on feed costs and production, resulting in early drying off of their herds.

"A higher Advance Rate at the start of the new season will help our shareholders in managing their farming businesses to ensure an ongoing supply of high quality milk to the co-operative," Wilson said.

Referring to the current season forecast, Wilson advised farmers to be cautious in managing their budgets as there had been a sharp drop in milk volumes as a result of the drought and there had been recent declines in GlobalDairyTrade auction results.

Fonterra's chief executive Theo Spierings said that in the global milk market  the "fundamental supply and demand balance has shifted".

Production slowing

He said global milk production growth was slowing as a result of unfavourable weather conditions in many key milk production regions.

"Although we are seeing modest production growth in the USA, recent cold conditions in Europe have had a negative impact on crops and dairy, and the outlook remains mixed.

"Milk production growth in 2013 for the top 15 exporting countries is projected at 0.5 per cent or 1.2 billion litres - well below the 1.8 per cent (4.5 billion litres) growth levels we saw in 2012."

In general, the global economic outlook remained steady but with some downside risk, he said.

In the US modest growth continued, while China had managed a "soft landing" with the consensus on growth there at around 7.8%.

"While we expect most farmer shareholders will welcome a higher milk price, we will continue to closely monitor these key factors contributing to Fonterra's opening forecast for the 2013/14 season."  Spierings said.

Fonterra was currently preparing its budgets for 2014, however, shareholders and unit holders should expect the strong uplift in international dairy powder prices to create a more "challenging environment" for Fonterra's earnings in the first half of the 2014 financial year, he said.

Raw Milk Regulations

Meanwhile Wilson commented on changes to the Raw Milk Regulations, applying from June 1.

"This season is the last when competitors can cherry pick when they get milk during the season, and it has coincided with the drought and the recent higher export prices.

"This meant Fonterra was required to supply large volumes of milk to competitors when milk flows were very low because of the drought, reducing the utilisation of our factories.

"At current prices, we estimate that the milk we have supplied our export competitors from March to May will cost our shareholders about NZ$25 million in lost earnings, amounting to 1.5 cents per share in lost earnings.

"At the same time we estimate that due to the drought the benefit to our competitors is far greater, with the potential to add between 5 - 30 cents per kgMS to their performance.

"As this year's drought has shown us, the Government did the right thing in changing the Raw Milk Regulations last year," Wilson said.


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Fonterra must assume that USD/NZD will stay around 0.80 -0.82 and international milk supply will remain tight. Milk supply will be tight from AUS and EU27 but US can turn things around pretty quickly!!

I guess the irrigation subsidy plans can be put back in the cupboard where they belong - payouts at this level must support self sustaining private business enterprise devoid of socialist taxpayer subsidies?
The leaders of the controversial Central Plains Water Scheme will be seeking capital in the next six months to get started on its construction.
Backers of a $150 million Canterbury irrigation plan to start from the Rakaia River will likely seek Government funding to help with the "mezzanine" portion of financing as well.
Central Plains Water general manager Derek Crombie said a $140m debt and and equity fund would be sought in the next six months, with a substantial capital raising needed for the first third of the scheme. Read more

SH. I wouldn't bank on it. What with its statutory monopoly, water subsidies and tax payer funded mad scientists Fontera is among NZ favoured welfare beneficiaries. I heard one of their boffins on commissar radio  (RNZ) the other day bragging that with its share of govt. money they were inventing a "cheese" that could be made, packaged and sold in one 24hr day - such muck!

LOL - indulging in a name and shame tax bludgers exercise, just as politicians do with Work and Income dependent citizens - I can discern no difference - but as you say, my pleas will gain no traction.

The Government would want commercial contracts with other investors to make sure taxpayer money was being used wisely and that the Crown eventually got its money back, English added.
Dedicated to Bill:

Advance at $5. That seems a bit risky, OCC early payment system having an effect maybe?
No change to this season. Bit surprised at that and the low retrospective payments through winter not going to be helpful to farmers or the economy.

No change to this season. Bit surprised at that...
Maybe the recent sharp pullback in the value of the NZD/USD was not fully anticipated and  currency profits above hedged levels fell in line with the move.

It is what it is. Up is better than down. We understand why more next rather than now and the jam NI suppliers and their seasonal financings are in.

It is what it is, but what is it... is it $7 or not...
why this second item in the herald..
Spierings told APNZ the drought had taken the shine off what would have been a strong season. Before the drought, production was running six per cent ahead of the previous record year. "That six per cent has gone down to a small negative."
He said volatility on world commodities markets meant Fonterra had taken a cautious approach. "Basically, that means don't finance your farm at around a $7.00 milk price."

It could be $7.00 but I think you will lucky to get that.
Fonterra appears both confused and lacking in confidence. Last auction Contract 2 WMP (July delivery) was USD 6,151, but contracts 4-6 (September to November delivery - high volume sales months) were around USD 4,400.
Is that drop what they mean by "prices may have peaked"?
A look at the export stats for WMP to China suggests that at NZD 4.11 April is the first month with average prices over NZD 4.00 since June 2012. The average price over the last 12 months is still only NZD 3.84.
gDT prices and export stats seem to be in different ball parks.
And what is a 'strong' season, and for whom? I would have thought that lower MS production held up export prices and payout.

it is what it is, but what is it... ... higher doesn't mean up....
why this third item in the herald

Fonterra's payout won't lead to higher milk prices - Chief
Fonterra last year conducted research on the affordability of milk and concluded that its product price increases would be in line with food price inflation.
"We are not going to price our products based on highly volatile commodities markets,'' Spierings told APNZ.
He said the higher milk price would put pressure on Fonterra's profit margins for its branded products.

Fonterra is clearly not happy about pressure on profit margins for its branded products.
I suspect that there may be elements of political pressure involved.

Joke which went around when the Soviets began buying wheat from the US:
Functionary: Why is the glorious USSR buying wheat from the running dogs of the US?
Kruschev:  We will order all the wheat they can provide, which will cause the price to rise so they produce more and more wheat and the price will go ever higher.  Soon it will become so profitable to grow wheat that they will devote more and more of their land to it, finally their capitalist greed will cause them to tear down their factories, rip up their roads, to plant more.  At last, the entire country will be one huge wheat field.
F: And then?
K: Then we cancel the order. 
Hmmm,  just change wheat to "milk" and USSR to China?