Fonterra lifts New Zealand farmer payout, says prices still unsustainable

Fonterra announced a final dividend of 25c and lifted its 2015-16 season milk price forecast – the amount it pays to its 10,000-plus farmers – to $NZ4.60 per kilogram, a 75c increase.

Mr Wilson said that “a lift in [world dairy] demand, which is needed for prices to continue to rise, is still to come”.

New Zealand farmers had criticised the co-operative for paying its Australian farmers a higher price in the wake of a near halving in the prices of key global dairy commodities.

Fonterra Shareholders’ Council chairman Duncan Coull was encouraged by the improved second-half performance, saying it was due to solid returns from the ingredients and the consumer and food service businesses.

Fonterra has also lowered its forecast milk production for the season.

Slowing economic growth in China and a global oversupply of milk products have battered dairy prices, which are down more than 50 percent from their record highs in 2013 despite a rally in the past two months.

The co-op has in the past aimed for a gearing ratio of 40 to 45 per cent. Chief executive Theo Spierings said: “It’s still not where we want it to be, but it is close”.

Investments in New Zealand over the year represented additional capacity of 8.2 million litres and included $132 million spent on anhydrous milk fat, milk protein and reverse osmosis plants at Edendale in Southland.

Fonterra forecast sales to Asian bakeries would more than double to NZ$1 billion by 2020.

Wilson said a lift in profitability in the second half of the financial year was expected to carry through into the current financial year.

However, John is warning that current global dairy prices are still unsustainable.

“Looking ahead, this uncertainty means that world markets are likely to be hard in the medium term”, Mr Spierings said.

It’s a good effort… but result far from comfortingThe announcement of the 2015 Annual Result for Fonterra held at the Pullman Hotel.

Fonterra is continuing the business review it started at the end of previous year to reduce its costs. They bailed their farmers out (with a 50c/kg loan) when they were under the pump and they have enough confidence to move the forecast price back up.

The forecast total payout available to farmers in the 2015/16 season is now between $5.00/kgMS and $5.10/kgMS.

Dairy NZ estimated farmers would require an extra $100,000 over the season.

The company runs dairy farms in Hebei and Shanxi provinces, and this business bled a NZ$44 million loss amid falling prices of raw milk.