Fonterra forecast payout up 25 cents

Fonterra suppliers have just received an early Christmas present.

A newsletter from chair, Henry van der Heyden announced an increase of 25 cents in the forecast payout.

That takes it up to $5.90 – $6.00 before retentions.

That’s made up of a higher farm gate milk price of $5.50 per kilogram of milk solids, up from $5.25 and reconfirmed net profit after tax range of 40-50 cents.The company is also increasing the advance rate by 40 cents so payments from late January will be $4.25 – up from $3.85.This shows the company recognises farmers have tight balance sheets and is using its strong balance sheet to help.Fonterra expects global dairy prices to increase in the first half of next year.It’s seeing signs of strengthening dairy prices, partially driven by global weather like drought in US, Russia and Ukraine and extremely wet conditions in Brazil and Argentina.

That’s welcome news for suppliers.

Whether new shareholders are quite as happy will remain to be seen because usually a higher milk price is reflected in a lower dividend.

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