New Zealand’s second largest dairy co-operative Westland Milk Products has revised its payout prediction for the 2014-15 season to $5.40 – $5.80 per kilogram of milk solids (kgMS) before retentions, down from $6.00 – $6.40 announced in July.
Westland Chief Executive Rod Quin said the revised payout prediction is a response to the conditions that all New Zealand dairy companies are experiencing at the moment.
“While the season is only just underway, we have always maintained a monthly revision process to provide shareholders with the most up to date forecast possible,” Quin said. “The reduction is driven by the falls in prices across the globe and the continued high value of the New Zealand dollar.”
While last week’s dairy auction saw an overall price drop of just 0.6%, Quin noted that the skim milk powder price – which represents a substantial proportion of Westland’s production – dropped 12%. He said there was still lacklustre demand from China and stock levels in distributor and customer warehouses was reportedly high.
“Higher prices last season caused a growth in milk supply growth in Europe, the USA and New Zealand, giving customers more options.”
Quin said the reduced payout will cause farmers to review their budgets. He said Westland’s board and management were very conscious of the stress this will put on some suppliers.
“We’ll be monitoring the situation and working closely with shareholders to help ensure they have the resources and tools to manage their way through this,” he said.
“Westland will also continue its strategy to grow its capacity to produce higher value nutritional products such as infant formula. Our traditional reliance on bulk dairy commodities such as skim milk makes us more vulnerable to the cyclical swings of the international dairy market. Our recently announced investment in a $102 million nutritionals dryer at Hokitika will give us the capacity to shift more of our production to this end of the market where profits are higher and opportunities to lift pay-outs are better.”
The medium to long term outlook for milk prices is firmer but this is a sensible response to short-term volatility in the market.
Fonterra dropped its opening forecast to $6 and the board made no change to that at yesterday’s meeting.