Fonterra cuts 2018-19 forecast to $6.75

Miles Hurrell
Miles Hurrell
Under-Fire Fonterra has cut its forecast farm-gate milk price for the 2018-19 season from $7 per kilogram of milk solids to $6.75, in the face of growing offshore competition.

Fonterra cited increased milk supply from markets including Europe, the US and Argentina.

Many analysts had already lowered their own expectations of the forecast price, coming in below the $7 range Fonterra had set earlier.

Fonterra chairman John Monaghan said the change was in response to stronger milk supply signals coming from some of the world’s key dairy-producing regions.

"These regions have a big influence on the supply and demand balance and, therefore, global prices," he said in a statement.

He noted that just a 1% increase in US production put just under 100 million litres of extra milk  into markets.

Last week ASB rural economist Nathan Penny had stuck with a forecast of $6.50 kgMS for 2018-19, but continued to note there were still negative risks to that number.

A $5 per kilogram payout is considered breakeven for the sector.

About three weeks ago, Fonterra said it did not expect to pay a final dividend, in order to boost its balance sheet, following the Danone settlement.

From an earlier projected payment of 25c-35c per share, in May Fonterra  lowered its forecast dividend to 15c-20c, because rising milk prices squeezed margins, but earlier this month it said it expected dividends would be only 10c, which had already been paid in April.

At the same time, Fonterra also trimmed its  2017-18 forecast farm-gate milk price to $6.70/kgMS from $6.75.

Fonterra has in recent months come under increasing pressure over the value of its Fonterra Shareholder Fund units, the $405 million write-off of an investment in a Chinese company and a more than $180 million settlement with French dairy giant Danone.

In early August,  it placed its shareholder fund in a trading halt as it reviewed its earnings guidance.

In March, it posted a first-half net loss of $348 million because of a $405 million writedown of its 18.8% investment in Chinese infant milk formula company Beingmate and the $183 million settlement with Danone, following their dispute over the 2013 whey protein recall.

Fonterra chief executive Miles Hurrell said yesterday the weakening New Zealand dollar had only partially offset the decline in global dairy prices.

"It’s still very early in the season and a lot can change over the coming months."Prices fell 3.6% overall in last week’s GlobalDairyAuction, trumping foreign exchange gains of around 3%.

"A drop in the new-season milk price forecast will be frustrating to our farmers, but it’s important we give them the facts so they can make informed decisions in their farming businesses," Mr Hurrell said in a statement.

• The co-op’s full-year results will be announced on September 13.

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