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Home / Business

Fonterra rules out surge in incomes

By ELLEN READ
27 Jan, 2005 08:56 AM3 mins to read

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Dairy farmers should not expect a spike in income as a result of high commodity prices - lower production and the high kiwi dollar are tempering the benefits.

Releasing Fonterra's interim results yesterday, chairman Henry van der Heyden said 2004-05 income should be in line with last season's.

Poor weather
lowered milk flows but this was balanced by the season's higher forecast payout of $4.30 per kilogram of milk solids, he said.

"Essentially, we're paying more for less with the forecast payout up 5c on last season, and that will go some way to offsetting the impact of lower production on farmers' incomes."

Van der Heyden said this season's forecast payout was the third-highest historically. Last season's was $4.25.

Overall, high commodity prices have offset lower production and the strong dollar to lift Fonterra's interim operating revenue to $5.7 billion.

This is 2 per cent up on the previous first half (June 1 to November 30) and sees the dairy co-operative halfway through its season with $2.4 billion available to pay to its 12,000 dairy farmer members - an increase of $140 million from last year's interim number.

Van der Heyden said: 'There's nothing on the horizon that we can see indicating that demand will actually start to slow down. If anything, the concerns are really around the supply side."

Fonterra's foreign exchange hedging policy (at 61USc for this year) was offsetting the impact of the strong dollar on revenue.

Chief executive Andrew Ferrier said: "If we look into next year, if exchange rates stay high then we think there can be an impact on payout."

But it was too early to start predicting next year's payout, given the variables, he said.

"It was a good first six months but an interesting first six months. It showed the mix of variables that impact on Fonterra - in a number of cases variables we can't control. Those were particularly the international commodity prices and the value of the kiwi dollar.

"We do remain optimistic as to the balance of the year but you will be seeing that balance between higher commodity prices and the impact of higher commodity prices on value-added activities."

Neither van der Heyden nor Ferrier would comment on the company's bid for National Foods.

This week, Fonterra extended its A$5.45 ($5.93) a share offer for Australia's largest dairy company in a widely expected move, shifting the deadline from February 1 to February 15.

"I have to ask for your indulgence here," Ferrier said.

"We're in the middle of a deal and there's nothing that we want to say at this time.

"There's obviously speculation in the press but we're not in a position to make any comments today."

He would not comment on reports that Fonterra had asked the National Foods board for access to its books to be better-informed about its value.

To be successful, Fonterra will have to lift its bid to beat a A$6 a share offer from Philippines beer and beverage group San Miguel, lodged on December 30.

With first-half production below expectations despite gradual improvements, Fonterra still expects a shortfall for the full year, with ingredient production down by about 75,000 tonnes.

But the company will be able to meet customer requirements for the season because of its strategy of sourcing products from elsewhere.

Steady as she goes

Dairy farm incomes are steady as a higher Fonterra payout compensates for lower production.

Fonterra revenue is steady as higher commodity prices are tempered by lower production and the strong kiwi dollar.

An expected production shortfall will be met by global third-party suppliers.

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