Westland forecasts higher payout than Fonterra

Last updated 10:40 30/07/2014
Rod Quin
Fairfax NZ
BOTTOMED OUT: Westland Milk Productions chief executive Rod Quin believes there are signs that dairy prices had reached the bottom of the price cycle.

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The West Coast's dairy co-operative has made a payout prediction of $6 to $6.40 a kilogram of milksolids.

Westland Milk Product's 2014-15 forecast, before retentions, follows Fonterra's milk price drop yesterday by $1 to $6, and both are in line with analysts revising their predictions after Fonterra's GlobalDairyTrade auction fell 8.9 per cent this month.

Westland has kept its payout prediction for the 2013-14 season at $7.50 to $7.70, with some of this to be retained for investment and other spending.

This remains under Fonterra's estimated final payout of $8.40, plus a 10 cent dividend.

Chief executive Rod Quin said Westland's predicted payout was in line with the predictions of other companies.

"The decline in payout for 2014-15 is due to lower international dairy prices and the relatively high New Zealand dollar," he said.

"The market has continued to decline as customers limit their purchases due to higher inventories in their supply chains, and growth in milk and dairy product supply from Europe and the US."

He said the signs were slightly more encouraging that companies had reached the bottom of the price cycle.

There were indications that customers were buying more milk products than in previous months to refill their needs.

Quin said some industry commentators had speculated that the weakening dollar might offset the impact of lower dairy prices and benefit payouts, but so far the decline in the dollar had been small and the currency remained overvalued.

"Westland's response to this situation is to continue its strategy to grow its capacity to produce higher-value nutritional products, such as infant formula," he said.

"Our traditional reliance on bulk dairy commodities makes us more vulnerable to the cyclical swings of the international dairy market.

"Our recently announced investment in a $102 million nutritionals dryer at Hokitika will give us the capacity to shift more of our production to this end of the market where profits are higher and opportunities to lift payouts are better."

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