Fonterra cuts forecast milk payout

FonterraFonterra has cut its forecast farmgate milk price citing weaker global dairy prices and increased production and skim milk stockpiles in Europe.

The dairy company cut the payout forecast to $6.40 per kilogram of milk solids, within the range expected by economists, from the $6.75 forecast in September.

The GlobalDairyTrade price index rose 0.4 per cent in this week’s auction, snapping four consecutive declines, but the gain came on lower volumes sold.

Fonterra paid its farmer suppliers $6.15/kgMS for the 2016-17 season and $3.90/kgMS for the 2015-16 season. Chairman John Wilson said the cut reflected ongoing volatility in global dairy prices and cited a 10 per cent drop in the price of whole milk powder since August 1.

“What is driving this forecast is that despite demand for dairy remaining strong, particularly in China, other parts of Asia and Latin America, we are seeing strong production out of Europe and continued high levels of EU intervention stockpiles of skim milk powder,” he said.

The impact on Fonterra was being partly offset by a weaker New Zealand dollar, he said. Fonterra also cut its forecast New Zealand milk collection for this season, by 1 per cent to 10525 million kilograms of milk solids from the 10540 million kilograms it projected in October, which itself was a downgrade.

That reflected “ongoing challenging weather conditions.” Revenue in the first quarter rose 4 per cent to $4 billion although sales volumes dropped 20 per cent to 3.9 billion liquid milk equivalent and said its gross margin fell to 16.7 per cent. Chief executive Theo Spierings said Fonterra started the year with record low inventory after the second straight year of low spring milk collections from New Zealand due to wet weather.

“This has challenged our ingredients business where we had lower volumes to sell,” he said. “As a result, sales were down 19 per cent to 3.6 billion LMEs.”

Last week Fonterra cut its forecast for 2018 earnings per share to a range of 35 to 45 cents, from 45 to 55 cents after an arbitration tribunal in Singapore ruled it must pay 105 million euros ($180m) to Danone over 2013’s botulism scare recall.

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