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.
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.
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.
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.
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..?
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