Too early to rethink payout, says Fonterra

ANDREA FOX
Last updated 05:00 07/03/2013

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Fonterra chairman John Wilson says the dairy giant will be watching world dairy prices closely in the next month for indications it should review its payout forecast.

But this week's 10.4 per cent surge in global auction prices was not enough to take to the bank.

Fonterra, which buys nearly 90 per cent of New Zealand's raw milk, in its most recent review held its milk payout forecast for the 2012-2013 at $5.50 per kilogram of milk solids despite a string of small world price rises.

But Tuesday night's leap in the average price on Fonterra's Global Dairy Trade auction has economists predicting a lift.

Westpac lifted its 2012-2013 payout forecast from $6/kg to $6.10/kg. Fonterra's forecast is $5.90 to $6 for a fully share-backed farmer. This includes the milk price and a dividend.

International buyers on GDT responded to drought in New Zealand and shrinking Australian production by bidding the average price of wholemilk powder through the US$4000-a-tonne barrier for the first time since March 2011, and all other major product categories are up 4.6 per cent or more on the last auction.

The BNZ and Westpac predicted continued price rises in the bi-monthly GDT events, suggesting Fonterra's payout forecast would get a nudge up as a result.

But Wilson told Fairfax Media that though the latest result was positive, it was too early to say if world prices would shift directors off their current payout guidance.

"The reality is milk supply is going to be well down [because of drought] on what we were anticipating two months ago. We will be watching GDT prices and world prices generally over the next couple of events. As soon as we have any view we can change, we will."

In the Waikato alone, drought has robbed farmers of at least $100 million of production income so far with further losses to come, DairyNZ said.

BNZ economist Doug Steel said tightening world supply was evidenced by product volumes offered on this week's GDT event being 14 per cent down on predictions. A record number of bidders went away unsatisfied, he said.

He expected GDT prices to "warm a little further" as the tight supply continued, but cautioned against too much payout optimism because rain would eventually arrive in the North Island and the northern hemisphere dairy season would get under way soon.

Westpac also increased its payout forecast for the 2013-2014 season, which starts on June 1, by 20c to $6.40.

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- The Dominion Post

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