By Bernard Hickey
Fonterra has increased its forecast payout for the current 2010/11 season by 30 cents to around NZ$7.20/kg and left its fair value shares unchanged at NZ$4.52 a share.
But it warned that production in the North Island was falling because of drought, which may reduce the size of any economic windfall. Many farmers are also repaying debt, which would reduce any resulting spending in provincial areas such as Southland, Canterbury, Waikato and Northland.
A payout increase of this magnitude would normally add around NZ$360 million in payouts to farmers over the course of a season if production matched last season.
Chairman Henry van der Heyden said commodity prices had stayed higher for longer than expected. He also noted dairy production in the North Island was falling because of the drought.
Fonterra increased its forecast Milk Price for the 2010/11 season by 30 cents to NZ$6.90/kg and left its target dividend in a range of 25-35 cents per share, giving a total payout of around NZ$7.20/kg.
Fonterra’s Board of Directors also announced the estimated Fair Value Share price for the next season in 2011/12 is NZ$4.52, which is the same as the current season’s price, although the independent valuer had estimated a Restricted Market Value range with a mid-point at $4.45 per share, up 4.2% increase from of NZ$4.27 from May 2010.
Fonterra Chairman Henry van der Heyden said the Board’s decision to raise the forecast Milk Price reflected the continuation of high international dairy prices further into the 2010/11 season.
Chief executive Andrew Ferrier said global markets for key dairy ingredients remained finely balanced, with solid demand being underpinned by some growth in supply out of the northern hemisphere.
“International dairy market prices have generally held up better than initially expected when we made the opening forecast back in late May. Offsetting this good news has been a stronger New Zealand dollar which is eroding the value of dairy export returns for our farmers,” said Ferrier.
“We had a solid result at the 1 December globalDairyTradeTM trading event, with average prices 1.5% above the 2 November event. This has added to our confidence in the season’s outlook,” he said, adding Fonterra was reviewing the potential impact of the recent dry conditions around New Zealand on production levels.
Van der Heyden said farmers would welcome news of a higher forecast milk price, but they also faced much higher input costs if current dry weather continued.
“It is still early in the season, and some good falls of rain could help a lot, but milk production in the North Island is declining and we know farmers in some regions are struggling,” he said.
'Profit at lower end'
Ferrier said although there was no change to the overall forecast profit range, management’s latest estimate had moved down to the lower end of the forecast range, mainly due to the pressure on earnings from the increase in the Milk Price and the strength of the New Zealand dollar.
"The earnings impact was mostly being felt in the Commodities and Ingredients businesses, with the performance of the consumer businesses remaining in line with the previous forecast," he said.
Meanwhile, Federated Farmers said production from key dairy farming areas was likely to be sharply down due to the spring drought.
“This is very good news but must be seen in the current reality of the drought-like conditions we’re in,” said Lachlan McKenzie, Federated Farmers Dairy chairperson.
“I think you’ll find this season’s production will be down sharply in the upper North Island. It also has to be remembered that the North Island is home to 77% of the nation’s dairy herds," he said.
“We are also aware of farmers having to dry off stock now due to lack of pasture growth. Once dried off a cow won’t produce until after they calve. So even if we had substantial rain starting today, it wouldn’t materially benefit pasture growth for upwards of four weeks," he said.
(Updated with Federated Farmers comment)
35 Comments
NZ Super Fund should buy the Crafar Farms , the SCF dairying assets, any other distressed sales in the milk space. NZ's competitive advantage in producing quality dairy products is a real goldmine as the world's population demands more and more protein. Sure it should invest in great companies like BHP, Apple, Daimler Benz, GlaxoSmithkline , and Nestle .... but Fonterra has the capability and market grunt to be a global world class company. Finland have Nokia ... NZ have Fonterra ... lets look in our back yard for great places to invest for our future.
These $6 and $7 payouts are the new paradigm , $4 payouts are history .
Hi Nusella and me,
It is always strange how people are telling us even not half the story. Measuring and judging success of a nation’s economy depends on many factors.
Therefore modern, good and in sustainable way working economies should also take the impact of dairy farming on our environment and health into consideration.
Even dairy cows shit and fart the hell out. As long as NZ doesn’t have a company dealing with Cowpat and Fart from 4 Million cows providing a clean environment - what are the costs for the taxpayers ? How economic is our NZDairy farming economy, especially long term ?
Does "Our NZmoney" go a vicious circle - making money for a few, but not for the NZnation ?
How much "Realmoney" would sustainable NZfarming, more diversity – green industries, Eco tourism, etc.- a 100%NZ pure Economy make for us ?
In the worldwide environment uncertainty on many fronts is a growing factor.
Smaller countries need to think smaller, but with greater ideas - “100%NZpure Economy”
Oh gimme a break ... more "dirty dairying" PR bull &%$# from the left. Jeepers , we are great at it ... it keeps NZ going ... 24% of our exports come from those farting pooing cows ... managed properly dairying is far less harmful to our environment than all those eco tourists eating their rabbit food dressed up as hippies that shit next to Lake Wanaka when they feel the urge to go !!
Wally - can't keep up selling my own shit.
Well Kunst if it dont start raining like hell pretty damn soon, that unbalanced economy you are talking about is gona tip over seriously again, like in 08, and a high payout while extraordinary doesnt help if the cows are dry. I ventured out around the hills today, and very critically eyed up the place, I honestly could not believe this was december pasture I was looking at. Very scary. Roll on the cyclones from the north.
I can see why you're upset Walter as Fonterra just continue to keep raining on your doomsday parade.
This is further bloody good news for NZ inc! Sheep prices are also soaring, with further strong lifts in beef and wool on a weekly basis now. Sorry doomsdayers but theres an export led recovery underway like it or not. Sure drought might effect things in places but its early days yet to be panicing over a dry start to summer.
Sheep Shagger - only because I see NZeconomy in a different prospect then you do the term Doomsdayers is certainly a misinterpretation.
I see myself as realist with reasonable good intellect to understand economic, financial, political, environmental, etc. correlations, which is highly important judging today’s fast changing and often unpredectible world.
I maintain my saying and I’m sure it will become very valuable in the next few years:
Small nations need to think small, but with great ideas – a sustainable “NZ100%pure Economy” will be far more successful then our current “Patchwork Economy”- including a massive Real Estate and Dairy industry.
Again read and undestand this in context to my many other articles.
I had a stint in Oz on a beef unit , miles beyond the black-stump . One day I picked up a dried poo pizza , and told the locals that I could tell 100 % if it was shat out by a cow or from a bull .
They were totally sceptical and incredulous , of course . " How ? " they entreated the blow-in from New Zealand .
" If you fling the dung up into the air ........... and it stays up there ........... clearly it's bull-shit ! "
[ ode to Walter : The Poo Pizza Waltz ...... ha ha de ha ! ]
It's the old adage if you don't shit you die. Seriously every turd dropped onto the landscape in New Zealand represents money. NZ's economy has irrevocably been tied to agricultural production ever since the first shipment of frozen Mutton went to England on the first refrigerated ship Dunedin in the late 1800's. So bend down and sniff it and smell NZ's economic future .Imagine what a Latte would be like without milk ? I know that some will say we don't need milk we can drink genetically modified Soybeans instead, it's healthier. It's raining in the Mauwatu.
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