It was a funny old day for Fonterra yesterday.
On the face of it, dairy farmers should have been celebrating, given the dairy giant confirmed a final cash payout of $8.50 for the 2013-14 season, the highest in the co-operative's history.
But it was tempered by a 70c drop in the forecast milk price for 2014-15 to $5.30, coupled with a massive hit to the balance sheet after plunging global dairy prices.
After-tax profit fell 76% to $179 million and normalised earnings before interest and tax (ebit) was down 50% at $503 million, while revenue increased 19% to $22.3 billion.
Fonterra chairman John Wilson said the revised forecast reflected current high levels of volatility, despite the fundamentals for dairy remaining strong.
Under the current market conditions, there was further down-side risk. However, the forecast reflected expectations that prices would increase in the medium term, Mr Wilson said.
ASB rural economist Nathan Penny said the forecast lift in dividend from 20c-25c a share to 25c-35c was a ''small upside surprise'' which would alleviate the drop in the milk price forecast ''to a degree''.
The cut in the forecast highlighted ''how exceptional'' the 2013-14 season was.
Fonterra farmers' incomes alone increased more than $4.8 billion in the season, and there was an 8% increase in production.
''In a way, what goes up must come down. When accounting for production increases, farmer incomes in aggregate are going to be roughly back where they started before last season's spike in prices,'' Mr Penny said.
Fonterra chief executive Theo Spierings described 2014 as a ''tough but defining year''.
Fonterra had focused on building volumes and value in its key markets, especially Asia and Latin America.
In Asia, there was volume growth of 12%, primarily driven by ''excellent'' performance in China.
However, its New Zealand and Australian businesses had a challenging year because of much higher input costs, but competitive pressure constrained its ability to pass those on.
Those businesses were now on a firmer footing to lift their performance in the current year.
The co-operative had speeded investments in the expansion of its New Zealand capacity.
In addition to a $235 million expansion at Pahiatua, $555 million was being spent on a high-efficiency drier at Lichfield and three additional plants at Edendale.
It was also supporting the growth of its food-service and consumer businesses by spending $126 million on a UHT plant at Waitoa, $72 million to expand its mozzarella capacity at Clandeboye and $32 million to expand at Eltham.
