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Current as of 26/12/14 07:40PM NZST

Jamie Gray

Jamie Gray is a business reporter for the New Zealand Herald and NZME. news service.

Fonterra's record milk price

It could go higher yet if dairy auction prices continue to defy gravity, says Westpac.

Chairman John Wilson said the record forecast farmgate milk price reflected continuing strong international prices for dairy. Photo / Christine Cornege
Chairman John Wilson said the record forecast farmgate milk price reflected continuing strong international prices for dairy. Photo / Christine Cornege

Fonterra has once again raised its farmgate milk price for the 2013-14 season, this time by 50c to a record $8.30 per kg of milk solids, but warned that its financial performance over the first half would be "significantly lower" than the first half of the previous year.

The milk price increase, with an estimated dividend of 32c per share, amounts to a forecast cash payout to farmers for the current season of $8.62.

Less than a month ago, the co-operative raised its milk price forecast by 30c a kg.

Westpac said prices could go higher still if GlobalDairyTrade prices continue to "defy gravity".

For farmers, the milk price is paramount, but ongoing high prices put pressure on Fonterra's manufacturing - and dividend-paying - operations through squeezed margins.

Units in the Fonterra Shareholders Fund, which are a "call" on the cooperative's dividend flow, dropped 11c to $7.07 on yesterday's payout news.

Chairman John Wilson said the record forecast farmgate milk price reflected continuing strong international prices for dairy, particularly whole milk powder, driven by robust demand from Asia, especially China.

Chief executive Theo Spierings said the business "faces headwinds", especially in the first half of the current financial year.

"The higher cost of goods will make it more difficult to drive earnings growth in our consumer and food service businesses in the first half of this financial year," he said.

"We also expect to see a negative impact on our product mix returns during the first half of the current year as milk powder prices significantly outpace the relative prices of cheese and casein," he said.

"Prospects for the second half look more positive for our consumer businesses, but remain uncertain for NZ Milk Products," he said.

Fonterra's estimated dividend of 32c per share for 2013-14 remained unchanged.

"It's obviously very good news for farmers," said ANZ Bank rural economist Con Williams.

"All up, year-on-year, it's an extra $4.3 billion on the previous season, which is 2 per cent of GDP," he said.

Fonterra, which is set to report its annual result today, has said its annual earnings will fall short of its prospectus forecasts.

Its normalised earnings before interest and tax were likely to be around $1 billion, down 7.3 per cent from the forecast in last year's offer documents for the Fonterra Shareholders' Fund.

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