Fonterra drops 2014-15 forecast, 2015-16 forecast better

An email from Fonterra chair John Wilson brings more bad news:

  • Today we reduced the current forecast Farmgate Milk Price for the 2014/15 season to $4.40 per kgMS. Along with the previously announced dividend range of 20-30 cents per share, the change amounts to a forecast Cash Payout of $4.60 – $4.70 for a fully shared-up farmer.
  • Today’s revision means there will also be a reduction to Advance Rate payments for August and September.  . .
  • The 10 cent reduction to the forecast reflects the reality that global commodity prices have not increased as expected.
  • World markets are over-supplied with dairy commodities after farmers globally increased production in response to the very good prices paid 12-18 months ago.  This supply imbalance has heightened due to continuing good growing conditions in most dairy producing regions. . .

This is unexpected and unwelcome but there is better news for next season:

  • We have also announced today our opening forecast Farmgate Milk Price of $5.25 per kgMS for the 2015/16 season.
  • The forecast Cash Payout will be available after we determine forecast earnings for the 2016 financial year, in July.
  • The Advance Rate will begin at 70 per cent of the forecast Farmgate Milk Price, with an opening rate of $3.66 per kgMS. . .
  • Our forecast takes into account factors including global milk production forecasts, the economic outlook of major dairy importers, current inventory levels and geopolitical events.
  • Prices are expected to recover going forward, with a rebalancing of supply and demand over the season.
  • However it is more difficult to say exactly when this recovery will lead to a sustained price improvement, and we recommend caution with your on-farm budgets at this early stage in the season.

Contractors are already finding farm work has dried up.

They and others who service and supply farmers will be sharing the pain until the payout picks up.

2 Responses to Fonterra drops 2014-15 forecast, 2015-16 forecast better

  1. Tom Hunter says:

    Amazing. No comments on a big (and bad) story about one of our biggest industries, And this on a farming blog.

    Okay. What does it say about the ten year strategic plan that Fonterra has been pursuing in an effort to insulate dairy farmers from boom and bust cycles?

    It says that it has failed. Increased global production of the basic commodity has thrown all other dairy products into the same hole. All the efforts to establish seamless connections between Fonterra and the likes of Nestle and Kraft (“preferred supplier” and all that) in order to reduce the ups and downs of a commodity market, have not worked.

    Perhaps I’m being unfair, in that the strategy is not yet complete: I see it has been pushed out to 2021!!!

    Of course the key question for some (many?) average Fonterra dairy farmers is whether they want to continue to hold hundreds of thousands of dollars in Fonterra shares simply for the right to supply milk to the company. After years of farmers fighting against the concept of freely traded shares it’s quote ironic to think that many must now be wishing for that very thing.

  2. homepaddock says:

    Tom – a lot of people read without commenting though what generates comments and what doesn’t often bemuses me.

    One reason suppliers have resisted the sale of shares is that shareholders can gain at suppliers’ expense and the interests of outside shareholders aren’t always those of the suppliers.

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