Fonterra boosts payout to $6.10

Fonterra has announced a 40 cent increase in its forecast milk payout for this 2009-10 milk season to $6.10 per kilogram of milk solids.

Continued strength in global dairy prices, with demand growth beginning to outstrip supply, had driven the board's decision to increase the forecast milk price, said chairman Sir Henry van der Heyden. "This extra 40 cents per kg/ms will be welcomed by our farmer shareholders and also confirms that 2009/10 is shaping up as the second best in terms of cash payments to Fonterra farmer shareholders," Sir Henry said. However, it came at a time when many farmers, especially those north of Taupo, were suffering from worsening drought conditions. Many of them were being forced to dry off their herds early this season, so unfortunately what they will gain in farm income through the higher milk price they may lose through lower production.

With a higher milk price forecast, Fonterra has revised the advance rate schedule for milk payments, with progressive increases in payments over the next six months. Sir Henry said this would put more money into farmers' pockets sooner - helping farmers with their cash flows while protecting the strength of the company's balance sheet. Fonterra chief executive Andrew Ferrier said that since the last milk price forecast, dairy prices had remained relatively high and more stable than expected for several months, and had recently increased further.

The global supply/demand balance for dairy products has shifted to a slight supply deficit. Demand from Middle East/North Africa and Asian markets continued to grow, he said. "On the supply side, global milk production has continued to slow, with production contracting in several key markets." Supply had been affected by a tough winter in Europe, while North American and Australian production is also down. In New Zealand, the effects of drought mean Fonterra's production was now projected to be similar to last season, compared to the modest increase the company forecasted at the beginning of the season, Mr Ferrier said.

The co-operative also maintained its forecast range for the 2009-10 distributable profit of 40-50 cents per share. Fonterra's target dividend range is also unchanged at 20-30 cents per share; this indicates 10-30 cents per share of distributable profit would be retained within the co-operative.