A red flag has gone up over the level of finished product being held by Fonterra and its potential to be written down in value, further undermining the giant milk processor's profits.
Following a week when Fonterra announced 523 job losses and the global dairy trade auction took its ninth consecutive fortnightly dive, hitting a six-year low, research by brokerage firm Forsyth Barr says stock inventory writedown is now ''likely'', as are further job losses.
Broker Andrew Rooney said there was growing concern about the quantity and saleable value of Fonterra's inventory, stored around New Zealand and possibly offshore.
''Anecdotal evidence has continued to indicate that storage and warehousing facilities are stocked with Fonterra product,'' Mr Rooney said.
Since July last year, the average commodity price was down 46%.
He said Fonterra did not disclose inventory levels, citing commercial sensitivity, but following the past season's record high milk collection, and feedback on storage, the inventory level was currently ''high''.
''We're concerned that the net realisable value of the stock is well below previous reporting levels, and that an inventory writedown is likely,'' he said.
Fonterra's average annual stock inventory is valued at $3.2billion, but for full-year 2014 the inventory value was $3.7 billion.
Mr Rooney said the ''negative trajectory'' of auction prices meant there was potential for the value of the stock to be written down.
''Volumes are unknown, but a -50% change in the farm-gate milk price could have a material impact on inventory valuations and, therefore, potential profit outcome,'' Mr Rooney said.
While some banks have already lowered their forecast for the 2015-16 payout down to $4.30, the key date for dairy farmers and analysts is now August 7, when Fonterra will announce its revision to its present $5.25 forecast.
Mr Rooney believes that on August 5, aside from the 523 jobs affected last week, Fonterra will announce additional restructuring, within its sales, marketing, research and development and communications teams.
The first round affected teams in finance, central procurement, information services, human resources, strategy and legal.
