The dairy company announced today a new forecast for its farmer-suppliers with the milk price increasing 60 cents to $4.60 and the distributable profit (value return) down 5 cents to 50 cents per kilogram of milk solid (kgMS).
The cooperative's total forecast available for payout for the 2009/10 season increases 55 cents to $5.10 per kgMS.
Fonterra chairman Sir Henry van der Heyden said the revised forecast reflected a sustained improvement in commodity returns and a more positive outlook in international dairy markets. Farmers would begin to benefit from the higher payout forecast from next month, with a lift in Fonterra's advance rate schedule of payments to farmer-suppliers, he said.
"We've had really tight cash flows on farms going into this season, and some serious belt tightening to get through. This will give our farmers a bit of relief and some extra flexibility to get the best out of their farms this year." Fonterra chief executive Andrew Ferrier said the strong increases in prices for whole milk powder (WMP) at the globalDairyTrade events in the past two months echoed a broad strengthening of demand and robust recovery in international dairy prices.
"What we're seeing in the international market is the firming of a trend, with a more positive sentiment and stronger demand, producing better pricing across the board. Whole milk powder prices have been leading the way, with the prices for other dairy commodities now all moving in the right direction.
"While this is good news for our farmers in New Zealand, we remain in a period of extreme price volatility, which makes forecasting challenging, to say the least." Mr Ferrier said the 60 cent increase in the milk price from July's forecast reflected higher whole milk powder prices which were included in the commodity milk powder streams within the milk price. The 5 cent fall in the forecast distributable profit is due to prices of cheese and casein product streams lagging the range of commodity milk powders (on which Fonterra's milk price is based). Higher or lower returns on cheese, casein and other streams versus the commodity milk powder streams, go to profit rather than into the milk price.
Mr Ferrier says the earnings and outlook for Fonterra's international businesses and joint ventures, including its Australia-New Zealand consumer business, which contribute to the distributable profit (value return) component of payout, remained unchanged from the July forecast.
Sir Henry said the level of the New Zealand dollar, which has been trading around 70 cents US, remains a concern but this has been fully factored in to the revised 2009/10 forecast.
Fonterra will announce its financial results for 2008/09 and confirm its payout for the 2008/09 season tomorrow.