Dairy group Fonterra confident global milk prices set for sustained lift
The Auckland-based company says it will pay its 10,500 farmer suppliers NZ$4.60 (€2.84) a kilogram of milksolids in the current season, ending May 31.
Dairy auction prices slumped to a 12-year low in August before stabilising after Fonterra reduced the amount it sells at auction on waning milk production.
The company expects prices will rise next year as a global glut dissipates and Chinese buyers return to the market.
“We support the consensus view in the market that an improvement will take place, but the market remains volatile,” said Fonterra chairman John Wilson.
“While there are signs of a recovery, particularly in China, we still need the imbalance between supply and demand to correct.”
The company last month forecast a full-year dividend of 35c to 40c a share, which would increase the total payment to at least NZ$4.95 a kilogram. Its 2014-15 payout of NZ$4.40 per kilogram of milk solids and a dividend of 25c was the lowest combined distribution since 2007.
Falling dairy farm incomes have curbed confidence and spending, hurting economic growth, according to Bloomberg reports.
Meanwhile, the company also says it will stop providing interest-free loans to debt-stressed farmers amid signs of an improvement in dairy prices and as the company seeks to cut costs.
The loans, which cost Fonterra around NZ$390m (€240m) since it started them in June, would stop at the beginning of next year, according to Reuters reports.
Improved milk prices and the need for “financial discipline” had prompted Fonterra to end the loans, chairman John Wilson said in a statement following the company’s quarterly review of the forecast farmgate milk price.
Fonterra is undergoing a business review it started last year to reduce its costs and in September the dairy company said it would cut a total of 750 jobs or 4% of the company’s 16,000 global workers.
Fonterra’s high debt levels continued to rise when the firm reported its annual results in September, in part because of the interest-free loans.
New Zealand’s central bank said last month that struggling farmers facing a second season of weak dairy prices were a growing risk to the economy. Dairy debt was NZ$37.9bn in June, according to RBNZ figure, roughly NZ$3bn higher than a year earlier.
Global dairy prices have stabilised in recent weeks after falling for three consecutive auctions, but most industry analysts are still warning that any recovery would likely be slow.
After rising steadily since 2008 to scale record highs in 2013, global dairy prices have fallen sharply because of slowing economic growth in China and global oversupply of milk products.
