Fonterra sets payout at $3.50 for next season

3.30pm

Fonterra Co-operative Group chairman Henry van der Heyden says the company will pay its farmers $3.50/kg milksolids in the coming season to May 2005, with likely variability of 5 per cent up or down.

The forecast compares with Fonterra's payout of $3.60 in 2003 and its forecast payout for 2004 of $4.15 which was reissued today.

'It's early days yet with our budgets for 2005 not finalised and our forecast 2005 exposures not yet fully hedged," Mr van der Heyden said.

But Fonterra was now in a position now to give farmers an indication of where it saw the range for that year.

"We will be in a position to firm that up as we finalise budgets in April."

Mr van der Heyden said in a statement to the Stock Exchange that what the company's farmers had now was more certainty around this season and an early estimate of next season's payout and the likely variability.

Fonterra usually waited until after its budgets had been cast, but wanted to clarify confusion over other parties' predictions for the next two payouts, he told a press briefing in Auckland.

The company had consistently signalled since last year that the weaker United States dollar -- and stronger exchange rate for the New Zealand dollar -- would have a major impact on payout next season.

Today's forecast gave farmers a very early estimate of that impact.

A specific figure was premature, given that 2005 exposures were not yet fully hedged.

"Our forecasts are based on recently high prevailing exchange rates for the balance of our unhedged exposures. As recent currency fluctuations show, the situation is still volatile."

While acknowledging that currency was a big influence on payout, Mr van der Heyden said: "It's important for our shareholders to recognise payout is not driven by exchange rates alone. Commodity prices could have a greater bearing on next season's payout than exchange rates."

Fonterra's costs and its ability to increase its value-added earnings were equally strong influences on payout "and we continue to work hard in these areas".

"Early indications are that these factors will work to partially offset the total impact of currency on payout," he said.

"We're focused on all the major drivers of payout that we can influence, such as controlling costs, increasing our operational efficiency, optimising our production and inventories to secure the best prices, and increasing our value-added earnings from specialty ingredients products and dairy consumer products."

Mr van der Heyden said global demand and prices for dairy commodities were stable and were forecast to remain around current levels in the short to medium term. Fonterra will announce its advance rate for the 2005 season at the end of April.

- NZPA