KEY POINTS:
Dairy co-operative Fonterra said record global commodity prices were not expected to fall sharply as it announced the available payout to farmers had more than doubled.
Fonterra said yesterday it had completed the first half of the season with $4.5 billion available to pay out to its farmer suppliers, up from $2 billion the previous season.
Revenue for the six months ending November 30 was up by $853 million to $7.3 billion on the back of record commodity prices and improved returns from ingredients sales and branded products.
Chief executive Andrew Ferrier said the co-operative was well placed ahead of an expected slight softening in prices.
The ANZ Commodity Price Index for dairy products had risen steadily from 127.6 in August 2006 to hit 291.9 in November 2007, before dipping back to 286.6 in December.
The international dairy commodity boom was driven by world economic growth and demand from emerging markets, reduced supply, drought in Australia and biofuel production driving up the cost of feedstock.
"We are well positioned having completed our first half of the year with $2.5 billion more available for payout and while prices are easing somewhat as supply increases in response to these higher prices, we do not anticipate there will be any sharp falls given the overall strength of the market and other factors such as the demand for grain and its use in biofuels," Ferrier said.
In December, Fonterra raised its forecast payout for the season by 50c to $6.90 per kg of milksolids, compared to $4.46 last year.
Production had previously been expected to grow by up to 2 per cent this season, which could result in a total payout of $8.8 billion, up from $5.6 billion last year.
During the half year farmers increased production by 2.5 per cent compared to the same period the previous year.
However, Fonterra chairman Henry van der Heyden said an ongoing dry spell was hitting production.
"If we get rain in the short term and good rain we should be ahead of last year, whether its 2 per cent it just really depends."
Fonterra was still comfortable with the forecast of $6.90 per kilogram of milksolids, van der Heyden said.
The half-year result reflected a good performance across the business and higher prices in a market in which supply was tight, he said.
"The selling prices achieved in the first half more than offset the higher average exchange rate of US75c.
"At the same time, we continue to see steady increases in the returns from our equity investments."
Chairman of Federated Farmers dairy section Frank Brenmuhl said a higher payout could enable some farmers to buy feeds. "At the moment I'm just pleased that things are going as well as they seem to be."
REVENUE UP
Six months ending November 30
Fonterra 2007 2006
Revenue $7.3b $6.5b
Operating expenses $841m $860m
Available payout $4.5b $2b
