Fonterra lifts forecast milk price by another 30c to $7.80 for 2013-14 season and a total payout of $8.12 to farmers

Fonterra lifts forecast milk price by another 30c to $7.80 for 2013-14 season and a total payout of $8.12 to farmers

Fonterra has announced yet another lift in its forecast farmgate milk price for the 2013-14 season - by 30c to $7.80 per kilogram of milk solids.

This follows a 50c increase in the forecast price barely a month ago.

The increase – along with a previously announced estimated dividend of 32 cents per share - amounts to a forecast cash payout for farmers of $8.12.

If these returns were achieved they would be new records, beating the $7.60 price and $7.90 payout in the 2010-11 year.

ASB chief economist Nick Tuffley said the new $7.80 price, which is some $2 higher than the 2012-13 price, implied that more than $3 billion extra would be pumped into the New Zealand economy in the next year.

"Last season’s milk price was $5.80/kg.  The forecast price of $7.80, combined with an estimated production increase of 2%, implies a $3.15 billion farmgate revenue increase from last season," he said.

The news is very welcome news for Fonterra and its farmer shareholders after the ongoing stresses and some international pressure coming from its recent contamination scare. And it's also very positive news for New Zealand's rapidly strengthening economy - with the higher price to pump large sums of extra money into the economy. See here for articles on Fonterra.

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

"Current market views support commodity prices remaining at historically high levels longer than previously forecasted," he said. 

"The two most recent GDT (GlobalDairyTrade) events have seen prices hold, and significant volumes sold.   These factors have contributed to our updated forecast," Wilson said.

There were a number of uncertainties "this early in the season", however, and that was why there would be no change to the current Advance Rate announced in July.

"We will provide an update on business performance when we announce our annual result on September 25,  2013," Wilson said.

Tuffley said although there had been some fallout from the whey contamination scare, it had not been enough to have a noticeable impact on prices.  Trade disruption had also been minor to date.

"We saw the previous milk price as comfortably achievable even if global prices had moderated over the rest of the season.  This new price would also still be achievable if prices moderated slightly over the rest of the season."

Tuffley said that as a rough rule of thumb, each 10 cent change in the milk price is worth $150 million in farm-gate revenue.  The latest revision implies additional on-farm revenue of $450 million, with the combined revisions to date of 80 cents/kg worth $1.2 billion.

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17 Comments

I smell a rat...I just haven't found the drain it went up.....
I mean I did bother to ask Global Dairy about who the single big buyer was at the last auction, much to my surprise they bothered to email me back to tell me that was confidential.
  Fonterra must be expecting a mighty big forex % in the baseline....or keep buying the bluff n upping the ante.

Or the banks demanded the pivotal publicly listed member of the coop borrow to fund the dispersed member's farm mortgage payments?

Hmmmmm Mr Hulme, ....here's the timeline from the Global times
http://www.globaltimes.cn/content/801352.shtml#.Uhwhn9K8BBE
some of the related reading I've done in offshore pieces do not reflect Fonterras enthusiasm.
 a headshaker for sure.
 Disappointment is in the wind, may become a real blower when it lands. 

 Disappointment is in the wind, may become a real blower when it lands.
 
Maybe not - it's a currency call after all:
 
European investors are backing Excalibur Funds Management Pty’s call for the Australian dollar to slump to 75 U.S. cents, reflecting record bets from speculators on declines in the currency.
 
Institutional investors placed $200 million with the Sydney-based hedge fund’s Australian dollar-only strategy since it started July 17, Matthew Harper, a principal and trader at Excalibur, said in an interview Aug. 22. Hedge funds and other speculators swung from record bets on Aussie gains in December to the most wagers ever this month that the currency will fall. Read more
 
At current NZD/AUD levels outright NZD/USD could test 0.6500.

Cheers for that Stephen H......fingers crossed then, good read too BTW.
Australia faces a 35 percent chance of falling into recession within a year, according to Macquarie Group Ltd., the nation’s biggest investment bank, the most bearish of 13 economists surveyed this month by Bloomberg News. 

With this sort of chatter from fx traders it looks you are on the money Mr Hulme. The comment stream below their charts has featured the AUD for weeks or even months now.
Generally speaking, there are 3 ways to trade a strong Forex trend. The first 2 methods pertain to matching a strong currency against a weak currency creating a currency pair. Using the chart above, a trader may look to buy the CHF while simultaneously selling a weak currency like the NZD or AUD. This is a very common method practiced by experienced traders who would sell the AUDCHF pair or the NZDCHF pair noting they are trading at levels not seen in the past 24 months and may consider using our 4 step guide to trading breakouts.

Nah Nah  something really really wrong here......almost over the top announcement given the big F trying to shrug off back t back bad press.....
 I heard of bailouts....not shure if this isn't a pailout
 Yours Sincerly
Gobsmacked Absolutely.

From California milk producers.

 

Chinese imports of dry dairy products were very strong in July. Whey imports totaled 48,064 metric tons (MT),up 24% from June and 47% higher than a year ago. So far this year, Chinese whey imports are 15% higher thanin 2012. Chinese whole milk powder

(WMP) imports totaled 33,609 MT, up 10%from a year ago and up 71% from June.

Year-to-date WMP imports are 42% higherthan last year. SMP imports were notably

higher than the prior month and year, butJanuary through July imports remain 12%

lower than last year. The U.S. sent a recordhigh7,989 MT of SMP to China in July and

accounted for over 37% of total ChineseSMP imports. This was the U.S.’s largest

share of the Chinese SMP market in over

five years.

Ta A.J.   good info into the mix......!! at some point the five eyes project has to clash with China's willingness to continue supporting the volumes.
 just gets more interesting by the week.

New gumboots for all !

Quite right SK.... mandatory I'd say, given the bulls*#t you have to wade through to glimpse Fonterra's  actuals.

Gee and here I was thinking this was great news for NZ and the economy with extra millions pouring into our economy.  No lets keep kicking Fonterra down and forget about how we would function without them.  Yes must be a conspiracy, must be some bad news in there somewhere with us earning more, I just have to find it.

That’s extra billions being pumped into our economy and it is great news.  What I just don't get about the commentators on this site is the eternal pessimism, doom and gloom.  They seem to hate success, I suspect it's because they've never experienced it themselves.

Happy123.....no question it's good news if bonafide, and I agree the kind of input foreign earnings wise we need.
 For the sake of the Farmers / shareholders it is transparency  I'm suspicious of or lack of it on many levels.
 Not only Fonterra but Markets to Governments have adopted  hype and spin to sustain the speculative portions of their earnings....very as a matter of factly.
 It is this considerable swing to placing unbalanced importance on speculative matters that has lead to  events coming as a shock to shareholders and citizenry alike.
 The GFC was a prime../subprime best example of what I'm on about, it should never have come as a shock but for the hype and spin that prolonged it's inevitability.
Mighty River when floating ,I suggested had a considerable speculative portion built into the share price offer, my best guess was it's actual value at around $1.90 to to $2.15 and I'm on record with that here......that's about where it settled.
 So don't misread the doom n gloom sentiment there, I am trying to ascertain most of the time when speculative push  overides the real value of stocks to policy...i don't trade negatively, or fearfully, but eyes wide open.
Good luck to you Happy.

Gladtobeakiwi....me too 4 shure, see my response to Happy, bout covers it.

FYI the milk price in the market is running at $9.00 presently so no this forecast of $7.80 is no spin on anything.

FYI the milk price in the market is running at $9.00 presently
yes gladtobeakiwi, and what makes you think that price holds no speculative portion sustained by the spin...?  oh please...dairy me. 
P. S. what % of Fonterra's bottom line last financials was represented by FX hedge..?