Fonterra cuts forecast payout to $4.50/kgMS on volatile dairy prices, over-supply

Fonterra Cooperative Group, the world’s biggest dairy exporter, has cut its forecast payout to farmers by 20 cents, blaming volatile global commodity prices and an over-supply in international markets.

The Auckland-based companies has reduced its forecast farmgate milk price to $4.50 per kilogram of milk solids from $4.70/kgMS, and retained its estimated dividend range of between 20 and 30 cents, it said in a statement. Fonterra also expects New Zealand milk production to rise to 1.607 million/kgMS in the current season from 1.584 million/kgMS a year earlier.

“We have confidence in the long-term fundamentals of international dairy demand, however the market has not yet rebalanced and GDT (global dairy auction) prices for products that inform our Farmgate Milk Price have fallen 23 percent since February,” chairman John Wilson said. “This reduction will impact cash flows for our farmers, who will need to continue exercising caution with on-farm budgets.”

The reduced payout follows rival Westland Milk Products, which yesterday cut its forecast to between $4.90 and $5.10/kgMS from a previous forecast of $5 to $5.40/kgMS.

Fonterra this month reshuffled its management team in a bid to push its value-add strategy harder after shareholders criticised its weak first-half result and lower forecast payout.

Units in the Fonterra Shareholders’ Fund, which give investors exposure to the cooperative’s dividend stream, last traded at $5.38, and have declined 10 percent over the past 12 months.

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