The grapevine had been warning that Fonterra’s forecast payout might be cut so yesterday’s announcement from the company wasn’t unexpected.
Fonterra has announced a revised payout forecast range for the 2012/13 season of $5.65 – $5.75 before retentions for a fully shared up farmer, 30 cents down on the previous forecast range.
The revised forecast comprises a lower Fonterra Farmgate Milk Price of $5.25 per kilogram of milksolids, down from $5.50 and a lower forecast net profit after tax range of 40-50 cents, down from 45-55 cents per share.
Fonterra is required to consider its Farmgate Milk Price every quarter as a condition of the Dairy Industry Restructuring Act (DIRA).
Fonterra Chairman Sir Henry van der Heyden said most of the downward pressure on the Farmgate Milk Price forecast was due to the continuing strength of the New Zealand dollar.
“We’ve actually seen improving prices in recent GlobalDairyTrade (GDT) trading events, but the strength of the Kiwi dollar is eroding any gains,” said Sir Henry.
Overall, the GDT trade weighted index was up 4.1% over the past four events, underpinned by a 7.8% rise on August 15. However, prices are low compared to a year ago and the New Zealand dollar remains strong against the US dollar. . .
The high dollar does erode returns for exporters but that’s not an excuse to tinker with the exchange rate as the Opposition would like to.
Lower export prices usually affect the currency and the dollar edged down yesterday.
While the short term outlook isn’t buoyant the drought in the USA is already having an impact on milk supply. Once farmers start culling, as they already are there, it takes two or three season to rebuild herds so the next couple of seasons could bring better prices for farmers here.