Double the good news at Fonterra

By CHRIS DANIELS

Fonterra dairy farmers have been given two pieces of good news to savour this Christmas - the value of shares in the co-operative has gone up, along with the forecast payout for the current season.

Better commodity prices, lower costs and good forward sales have lifted the forecast payout by 20c to $4.15 per kg of milksolids. A new valuation of farmers' stakes in Fonterra - known as the "Fair Value Share" price - has gone up by 3 per cent, to $4.50 a share.

A rough calculation of the size of the company after the revaluation would put its 'market capitalisation' at about $6.56 billion, up $100 million from the year before.

Fonterra chairman Henry van der Heyden said the board would be able to give an indication in March of the forecast payout for 2004-2005.

The average dairy farm supplies Fonterra with about 80,000kg of milk solids a year, meaning $4.15/kg will equate to a $332,000 payout.

Dairy farmers received $3.63 last season, a big drop from the record $5.30 payout of the year before.

Fonterra farmers are required to hold one "Fair Value Share" for each kilogram of milksolids they supply.

While the increase in value of the shares would have no immediate impact, the price becomes important on June 1, the start of the dairying season and the time farms and herds are bought and sold.

Standard & Poor's valued the shares at between $4.26 and $4.95, the Fonterra board choosing slightly lower than the midpoint of the range due to US dollar depreciation.

Van der Heyden said the major factor behind the fair value share increase was the decline in Fonterra's debt.

"Farmers now own more of the business than before and the banks own less. We have a strong balance sheet reflecting the good financial management of the business. As a result, the value of each share has risen."

Chairman of Dairy Farmers of NZ, Kevin Wooding, said farmers should be relieved to hear of the higher payout. Higher world prices and good demand meant Fonterra had delivered better-than-expected results.

The increase in share valuation was a sign that Fonterra was heading in the right direction.

"Dairy farmers are getting a better vibe from Fonterra and we're starting to see what we expected from the first day of the merger."

A lot of the 'political claptrap' that was part of the company in its early days appeared to have gone.

But Wooding warned farmers that much of the impact of the high dollar would be felt next season.

"I urge Fonterra suppliers to be aware of this and plan accordingly."

The high dollar would likely mean a 40c to 60c per kg drop in next year's payout, he said. Tuesday's increase in forecast payout meant a $16,000-$20,000 increase on the farmer's bottom line.