Fonterra cuts 2012 forecast milk payment on weaker prices

Fonterra is blaming a high kiwi dollar and weaker commodity prices for a lower milk payout next year. File photo / NZ Herald

Fonterra Cooperative Group, New Zealand's biggest company by sales, says the decline in its milk payment next year will be greater than it previously forecast, reflecting a high kiwi dollar and weaker commodity prices.

The payout forecast for the 2011/12 season will be $6.70 to $6.80, down from the range of $7.15 to $7.25 it affirmed in September.

The revised forecast is made up of a farm gate milk price of $6.30 per kg milksolids, down from $6.75 previously flagged. The forecast distributable profit portion is unchanged at 40 cents to 50 cents per share.

"This softness of commodity prices has been reflected on Fonterra's online trading platform Global Dairy Trade (GDT), which has experienced eight successive price falls - and one uptick - since May," said chairman Henry van der Heyden, in a statement.

The GDT-Trade Weighted Index has dropped about 16 percent since May 3, when Fonterra made its opening forecast for 2012 of $6.75 per kgMS.

Van der Heyden said a decline from 2011's record payout was always anticipated.

"We aren't yet seeing the recovery of international dairy prices we initially anticipated and we are also dealing with a much stronger New Zealand dollar," he said. "Higher prices often lead to increased supply into global markets from our global competitors, as well as reduced demand. We are seeing this and it is impacting prices."