Fonterra milk payout 2c below forecast

Fonterra has issued an initial forecast payout for next season of $4.05/kg of milksolids, 2c/kg below the latest forecast for this season.

For the "average" Fonterra dairy farmer, producing 100,000kg of milksolids in a season, a 2c dip in payout would represent a gross annual income reduction of $2000.

It would also equate to a national drop in gross Fonterra dairy farmer income of more than $22 million.

Although the $4.05/kg is 20c better than the original estimate of $3.85/kg, the projections for this and next season remain significantly below last season's final figure of $4.59/kg.

Also, yesterday's projection for the 2c drop came despite a significant fall in the dollar this year. But the price of Fonterra shares held by farmers will increase by 6 per cent.

Hayley Moynihan, a senior analyst with rural lender Rabobank, said the $4.05/kg forecast did not alter her view that dairy farmers would remain "conservative" in their spending for some time, despite more confidence thanks to a higher dollar.

Moynihan believed most farmers would have been budgeting for about $4/kg next season anyway and she did not think an anticipated 5c/kg more than that would see them suddenly waving their chequebooks about.

Fonterra chairman Henry van der Heyden said $4.05/kg reflected the company's view that trading conditions were "reasonably stable".

Commodity prices had come off record highs and could weaken further. But there was still good demand, the dollar had fallen and there was growth in returns from value-added activities.

Van der Heyden said the forecast was "good" given dairying's contribution to the economy.

NZ Federated Farmers president and Manawatu dairy farmer Charlie Pedersen praised Fonterra for stripping costs out of its business and felt most farmers would welcome $4.05/kg.

Waikato Federated Farmers president and dairy farmer Peter Buckley said farmers would want more than $4.05/kg next season, particularly given rising costs.

But "it's a hell of a lot better than what they started off at this season".

Buckley hoped Fonterra would be able to lift the forecast up to $4.30/kg to $4.40/kg by October.

But Van der Heyden said $4.05/kg was "based on the best information we actually have" and the forecast was not artificially low so Fonterra could look good by raising it later.

Fonterra also announced $5.80 as next season's price for Fonterra fair value shares held by farmers. This is up 36c on this season but 6c lower than an interim forecast in December - $5.80 is the mid-point of a valuation range and takes into account budget forecasts and three-year business plans.

Fonterra suppliers must buy shares in relation to their production - they can take capital gains when they cash in the shares.

Buckley said he was not surprised the new price was 6c below the earlier projection, as it had been felt this might be too high.

Van der Heyden said increased valuations of Fonterra Ingredients and Fonterra Brands had contributed to the rise in the share price. The rise reflected the ongoing drive for efficiencies "and anticipates further contributions from business improvements in the medium-term".