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Current as of 02/12/16 07:39PM NZST
Jamie Gray is a business reporter for the NZ Herald

Early payout boost for farmers

Fonterra says part of forecast final dividend will be moved up to ease low-price pain.
Fonterra says a solid first nine months has let it  pay farmers sooner. Photo / Bloomberg News
Fonterra says a solid first nine months has let it pay farmers sooner. Photo / Bloomberg News

Fonterra has come good on its promise to help farmers hit by low milk prices by confirming an early part-payment of its forecast final dividend.

The company said a solid result in the first nine months of the year meant it would pay a 10c-per-share dividend on June 7. It also plans to declare an additional 10c-per-share dividend in August, subject to its financial performance continuing to support the current forecast earnings-per-share range of 45c to 55c.

In March, a sharp lift in profitability had allowed the company to double its interim dividend to 20c.

Based on the current farmgate milk price of $3.90 a kg, the total payout for this season will go to $4.30 a kg - still short of the breakeven point of $5.25/kg.

Dairy NZ estimates that around 85 per cent of the 14,000 owner-operators and sharemilkers affected by the low milk price are not making money this season.

AgriHQ dairy analyst Susan Kilsby said she expected to see a small improvement in prices at tomorrow morning's dairy auction, which will be very light in volume terms - with just 5500 tonnes of wholemilk powder on offer, compared with 7500 tonnes at the last auction and 12,500 tonnes at the corresponding auction last year.

DairyHQ has a $4.70 a kg farmgate milk price forecast for 2016/17 which Kilsby said may come down if this week's auction disappoints.

At the last sale early this month, the GDT Price Index dropped by 1.4 per cent from the previous event and the average price came to US$2203 a tonne.

Fonterra said its performance over the first nine months reflected New Zealand ingredients continuing to achieve improved product mix returns and efficiencies, and improved gross margins in consumer and foodservice, supported by volume growth and lower input costs.

The 45-55c earnings-per-share forecast range reflected a range of possible impacts through to the end of the financial year.

"These include the completion of announced business sales in Australia, our New Zealand ingredients sales and inventory profile, our ability to contract and ship late-season milk in difficult global market conditions, and the deteriorating geopolitical situation in Brazil and Venezuela," the company said.

Chairman John Wilson said that while the milk supply and demand imbalance continued to impact global milk prices, the business was delivering on strategy and had maintained the good performance levels seen in the first six months.

Fonterra's forecast New Zealand milk collection for the current season is 1.56 billion kg of milk solids, which was 3 per cent lower than last season, compared with its earlier forecast of a 5 to 6 per cent reduction.

Theo Spierings says ingredients gross margins had grown to 16 per cent. Photo / Dean Purcell
Theo Spierings says ingredients gross margins had grown to 16 per cent. Photo / Dean Purcell

Chief executive Theo Spierings said despite lower milk collections, ingredients gross margins improved to 16 per cent.

"We have continued to optimise our product mix by adjusting volumes away from reference products, such as whole milk powder, towards non-reference products, such as cheese and casein, to take advantage of the relative pricing," Spierings said.

Fonterra said yesterday that milk production has been strong in the European Union and eased in other major exporting countries. Exports were strong in New Zealand, Australia and Europe but down in the US due to increased domestic demand.

China, Asia and Latin America continue to see strong growth in dairy imports while imports have softened in the Middle East and Africa, it said.

Analysts said there were encouraging signs that the overproduction problem was starting to correct itself.

ANZ rural economist Con Williams said a milk price "in the mid $4s" was likely for 2016/7 if this week's auction comes up short.

Williams said the downward revision in Australia by embattled dairy co-op Murray Goulburn and its main competition - Fonterra - was likely to lead to lower production across the Tasman.

Williams said: "There is more evidence that there is more farmgate pain being felt in other regions, which should help slow supply growth and help to rebalance the market in time."

- NZ Herald

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