New Zealand exporter Fonterra forecasts historical high milk prices
In a country where dairy exports account for a quarter of all exports, high milk prices and solid payouts to dairy farmers are a boon to economic growth and support the New Zealand dollar.
Fonterra’s payout to its farmer shareholders for the current season was finalised at NZ$8.40 (€5.24) per kilogramme of milk solids — the highest since the co-op was formed in 2001.
Higher production around the world has pressured global dairy prices in recent months, prompting Fonterra to set its initial forecast for the coming season at $7, but that may be revised up if China’s appetite for milk formula and other dairy products grows as the firm expects.
“We’re still looking at good prices for the milk powders,” Fonterra CEO Theo Spierings said.
New Zealand’s milk powder exports to China doubled to $4tn in 2013, and Spierings said exports could still grow if Fonterra’s payout for the coming year was around $8.
Fonterra’s payouts are based on volatile benchmark global dairy prices set at fortnightly auctions conducted by the co-op and which have mostly hovered at all-time highs over the past year. Fonterra has only limited leeway in adjusting the payout level under its constitution.
High payouts, however, also crank up input costs and cut into Fonterra’s operating margins, prompting the cooperative to warn late last year that its dividend would be slashed to 10c per share from 32c, while earnings for the year ending in July would fall to around $500m to $600m from $1bin in 2012/13.
To benefit from higher prices and growing production, Fonterra needs to boost its domestic milk powder processing capabilities, Spiering said, adding that the co-op is looking to build two plants.
