Milk price 'amazing'

Fonterra's forecast farmgate milk price, which rose a further 50c yesterday, could be revised higher still, Westpac's chief economist Dominick Stephens said yesterday.

Should prices on the online trading platform GlobalDairyTrade continue to ''defy gravity'', another increase could be in store, he said.

Yesterday's increase brought the forecast price to $8.30 a kg/ ms.

The increase, along with an estimated dividend of 32c a share, amounted to a forecast cash payout of $8.62.

Each 10c change in the milk price was roughly estimated to be worth about $150 million in farmgate revenue.

In late July, Fonterra lifted its forecast 50c from $7 and then upped it a further 30c in late August.

The latest forecast reflected continuing strong international prices for dairy, particularly whole milk powder driven by robust demand from Asia, especially China. However, there were still high levels of volatility around the world, chairman John Wilson said in a statement.

Federated Farmers national dairy vice-chairman Andrew Hoggard described the forecast milk price as ''amazing''.

Yesterday's announcement preceded today's full-year financial result to be released by the co-operative.

The impact of drought, particularly on the North Island, might see Fonterra miss its prospectus forecast for the Fonterra Shareholders Fund and the co-operative's supplier-shareholders would not be expecting ''any surprises'' when the results were released, Mr Hoggard said.

Fonterra's chief executive, Theo Spierings, said the business faced headwinds, especially in the first half of the current financial year when it expected earnings would be significantly lower than the strong performance in the first half of 2013.

''The higher cost of goods will make it more difficult to drive earnings growth in our consumer and food service businesses in the first half of this financial year.

''We also expect to see a negative impact on our product mix returns during the first half of the current year as milk powder prices significantly outpace the relative prices of cheese and casein,'' he said.

Prospects for the second half looked more positive for Fonterra's consumer businesses, but remained uncertain for New Zealand Milk Products, Mr Spierings said.

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