Fonterra has announced a 10 cent increase in its forecast payout for this season, taking it up to $5.20.
The significance is not so much the sum but the direction.
All recent changes to the forecast payout have been downwards adjustments so an upward change is a welcome reversal of that trend.
The decision to increase the forecast payout will allay some of the concerns farmers have had over the company retaining earnings rather than paying them out to shareholders too.
Farmers will receive the extra 10 cents in the advance payout from June.
The company media release says:
Fonterra Chairman, Henry van der Heyden, said the move reflected the Board’s desire to do what it could to assist farmer-shareholders during a very difficult year of sharply lower commodity prices. Normally, Fonterra only announces a revision when the forecast payout moves by at least 30 cents from the previous forecast, but the Board wanted to share the news of the higher payout forecast with farmers as soon as possible.
“Although international dairy markets remain uncertain and volatile, some encouraging signs of more stability have been emerging in recent months. Powder prices on our globalDairyTrade platform have increased and our global sales team has made good progress in selling product at these improved prices. As a result, we now have the cautious optimism necessary to signal a modest but welcome increase in payout.”
Fonterra management was working hard to extract further returns from the business in an effort to increase the payout further, but Mr van der Heyden said farmers should expect some level of retentions if the amount available for payout exceeds $5.20.
“We need to tread a fine line between maximising payout to our farmers and strengthening the Co-op’s balance sheet in these uncertain and challenging financial times. We have decided to put an extra 10 cents per kgMS in the pockets of farmers as soon as we can, while at the same time noting that retentions will be considered if the eventual payout is higher.”
My inference about retentions was wrong, but cautious optimism is still better than pessimism.