Fonterra opening forecast $6.25 – $7.25 per kgMS

May 23, 2019

Fonterra has announced an opening forecast price of $6.25 – $7.25 per kgMS:

Key third-quarter financial performance numbers:

    • Sales volumes: 16.6 billion LME, up 4%
    • Revenue: $15 billion, up 1%
    • Gross margin: $2.2 billion, down 3%
    • Normalised operating expenses: $1.8 billion, down $73 million
    • Normalised EBIT: $522 million, down 9%
    • Capital expenditure: $419 million, down 28%
  • Revised forecast earnings per share range: 10-15 cents from 15-25 cents per share
  • 2018/19 forecast Farmgate Milk Price range: $6.30 – $6.40 per kgMS
  • Opening 2019/20 forecast Farmgate Milk Price range: $6.25 – $7.25 per kgMS
  • 2019/20 Advance Rate Schedule has been set off $6.75 per kgMS

A dollar range in the forecast is a wide one but its an uncertain world and it’s better to be clear about that.

Fonterra Chief Executive Miles Hurrell said that good progress is being made on the strategy review and reiterated that the benefits from those changes will take time to flow through into the Co-op’s financial performance. . .

Farmers and unit holders can expect to see some fluctuation in our earnings over the next couple of years and there will be one-off transactions and adjustments (some positive, some negative) as we reset the business and deliver on our new strategy.

“We are committed to keeping people updated as we make progress. Today’s update is:

    • We are commencing a strategic review of our two wholly-owned farm-hubs in China
    • We have agreed with our partner Nestle to review options for the future ownership of our Dairy Partners Americas (DPA) Brazil joint venture, including a potential sale of respective stakes
    • We are closing our Dennington site in Australia.

“These decisions relate to our new strategic direction – in particular, prioritising our New Zealand milk supply and simplifying our global portfolio, which, as we have said previously, requires us to review every part of business to ensure it meets the needs of the Co-op today.”

Changes had to be made and the new board and management are making them.


Fonterra drops forecast payout

October 10, 2018

Fonterra has dropped its forecast farmgate milk payout for the current season:

Fonterra Co-operative Group Limited today revised its 2018/19 forecast Farmgate Milk Price from $6.75 per kgMS to a range of $6.25-$6.50 per kgMS and increased its forecast New Zealand milk collection volumes by 1.3 per cent to 1,550 million kgMS.

While no-one will be celebrating this, it’s not unexpected and it’s still not a bad price.

Although it’s very early in the season and it could well change again.

Fonterra Chief Executive, Miles Hurrell, says the change in the forecast Farmgate Milk Price was due to a stronger global milk supply relative to demand at this time.

“I know how hard it is for farmers when the forecast Farmgate Milk Price drops, but it’s important they have the most up to date picture so they can make the best decisions for their farming businesses.

“We are still seeing strong production coming from Europe, US and Argentina. While the hot weather in Europe has slowed down the region’s production growth, it is still tracking ahead of last year. US milk production is up slightly and Argentina’s is up 6.8%.

“Here in New Zealand, the season has got off to a positive start, mainly thanks to good weather and early calving in the South Island. As a result, we have increased our forecast milk collections for the year to 1,550 million kgMS – up from 1,525 million kgMS.”

Mr Hurrell says that global demand is simply not matching current increases in supply.

“At recent Global Dairy Trade (GDT) events, prices for all products that make up the milk price have fallen. Demand for WMP, in particular, continues to grow in China, and it remains strong across South East Asia, but it simply isn’t matching current levels of supply.”

Talking about the new move to provide a range for the forecast Farmgate Milk Price, Mr Hurrell says it was part of the Co-op’s intention to provide the best possible signals.

“We operate in a hugely volatile global market place, so it is very difficult to pinpoint an exact forecast Farmgate Milk Price this early in the season. For example, weather conditions can change suddenly and this can have a significant impact on the global milk supply.

“As a result, we have chosen to give a range of $6.25-$6.50 per kgMS and be clear that the Advance Rate is based on $6.25 per kgMS and the final price could be outside this range as we are still early in the season and up against considerable volatility. We therefore recommend farmers budget with ongoing caution.”

The timing of today’s update is driven by available market information and is not a DIRA requirement. Fonterra is required to give a forecast for DIRA purposes by 15 December 2018.

Supply and demand – the former is higher than the latter which depresses the price.

It’s as simple as that.

 


Fonterra’s forecast milk payout falls

December 8, 2017

Fonterra has revised its forecast farmgate milk payout price from $6.75 to $6.40:

Chairman John Wilson says the lower forecast Farmgate Milk Price reflects a prudent approach to ongoing volatility in the global dairy market. The GlobalDairyTrade price for Whole Milk Powder is a big influencer of the Farmgate Milk Price and it has declined by almost 10 percent since 1 August 2017.  

“While the result of the arbitration with Danone has impacted our earnings guidance for the season, it has no influence on our forecast Farmgate Milk Price,” says Mr Wilson.

“What is driving this forecast is that despite demand for dairy remaining strong, particularly in China, other parts of Asia and Latin America, we are seeing strong production out of Europe and continued high levels of EU intervention stockpiles of Skim Milk Powder.

“This downward pressure on global prices is being partly offset by the lower NZ-US dollar exchange rate,” says Mr Wilson.

“Our strong financial position, customer order book at this point in the year, and confidence in demand means that the Board is able to increase the payments made in January by 10 cents per kgMS and will hold the Advance Rate through to the payments in May.

“In effect, our farmers will receive equal or higher payments for their milk over this period than were scheduled under the previous $6.75 milk price.

Fonterra has also updated its full season New Zealand milk collection forecast due to ongoing challenging weather conditions. The Co-operative has reduced its forecast by 1 per cent to 1,525 million kgMS – the same volume as last season. 

Given drops in GlobalDairyTrade price index in successive auctions, relieved by a very small lift this week, the drop in the forecast payout isn’t surprising.

It’s not the early Christmas present dairy farmers, sharemilkers, their staff and those who service and supply them were wanting, but it wasn’t unexpected and it’s still a reasonable return.

Of more concern is the dry weather.

A wet spring enable a late start to irrigation in North Otago but everyone’s watering as much as they can now.

At least here we have reliable water supplies.

Farmers in other areas where there is no irrigation, or where they face restrictions in dry weather, will be hoping forecasts for continuing hot weather and little or no rain are wrong.


Fonterra opening forecast $4.25

May 26, 2016

Fonterra has announced an opening forecast farm gate milk price of $4.25 per kilo of milk solids for next season.

Prices are expected to increase during the season but no one should be banking on that.


Rural round-up

January 28, 2016

Rural to benefit:

Rural fire chief Mike Grant hopes the intentions outlined in Fire Service reform documents become reality.  

Grant, the principal rural fire officer for the Southern Rural Fire Authority, said much of the detail was unknown because it had still to be discussed by Cabinet but there was a consistent message on how the new management entity should operate in the review document, submissions and analysis. . . 

Dairy farming best choice for Dairy Woman Network local co-convenor

Matamata sharemilker Suzie van Heuven could not imagine going back to working in town.

The Dairy Woman Network (DWN) co-convenor for the East Waikato group is hooked on dairy farming.

That might not be surprising seeing she grew up on a farm in Waitoa except for the fact that her high school career ambition was to be a vet or a cop.

But while waiting to be old enough to apply for the police force she dabbled in the dairy industry and by 2011, had progressed to farm manager. During that time she was involved in the Ngarua Young Farmers club, where she met her future husband, Alex. . . 

Despite Expected Milk Price Correction, 45 Cent Drop is a Sobering Blow to Farmers:

Fonterra Shareholders’ Council Chairman, Duncan Coull, said that today’s announcement of a 45 cent drop in the 2015/16 forecast F from $4.60 kg/MS to $4.15 kg/MS, is one that will further amplify the effects of the current low milk price environment on Farmers and their businesses.

Duncan Coull: “Farmers are very aware that this is a global story which is now having a significant local effect. Strong supply out of Europe coupled with flat demand is driving market sentiment as evidenced by the GDT results. . .

More moo woo – Alison Campbell:

Once I started paying attention to the woo around milk I realised how much of it there is. And how ready people are to accept it.

I’ve written about the notoriously non-scientific Food Babe before. Someone with a high pain threshold could probably manage a daily blog post on this young woman and the way she manipulates opinion, and sometimes sells the very things she inveighs against… But I digress!

Today I noticed she’s shared a link about how drinking milk encourages the development of osteoporosis. I was mildly suspicious about the source (‘healthy-holistic-living.com) but before taking a look, I skimmed the comments. Oh dear. . . 

New Science Challenge to boost land productivity and the environment:

Science and Innovation Minister Steven Joyce today launched the Our Land and Water National Science Challenge, which aims to enhance primary sector production and productivity while maintaining and improving land and water quality.

The National Science Challenges are dedicated to breaking new ground in areas of science that are crucial to New Zealand’s future.

“From an economic standpoint they don’t come much more important than this,” Mr Joyce says.  “There is increasing confidence that new agricultural tools will be able achieve both these crucial objectives for New Zealand.  The job of this challenge is to use science to accelerate the development of these tools.” . . 

Welfare of horses and donkeys the focus of a new code:

New minimum standards and best practice guidelines for the management of domestic horses and donkeys have been developed in a new code of welfare.

The new code comes into effect on Thursday (28 January 2016) and includes standards for equine management, food and water requirements, handling, training and equipment, husbandry practices and equine health.

The code has been developed by the National Animal Welfare Advisory Committee (NAWAC) and applies to horses, ponies and donkeys and their hybrids kept for any purpose including those kept as companions (pets), for breeding, sport, entertainment or as working animals. The code also applies to foals and any horse captured from the wild. . . .

Retiring Farmers Urged to Consider All Options Before Selling Up:

With succession front of mind for New Zealand agriculture, a North Island sheep and beef farmer turned agribusiness advisor is encouraging farm owners to explore all of the options before settling on a succession plan.

Sean Bennett, a veteran of 20 years on the land prior to becoming an agribusiness advisor for Crowe Horwath, suggests that succession is one of the industry’s biggest challenges over the next decade.

“When you consider the average age of a New Zealand farm owner is marching steadily towards 60, and the forecast capital required to replace their exit has been estimated at over NZ$60 billion, it’s easy to see why there are widely held concerns,” says Bennett. . . 

Soaring Start to Karaka Select Sale:

After just one day of trade at the three-day Karaka 2016 Select Sale the aggregate is already over half of the final aggregate of last year’s Sale, thanks to spirited competition at all levels of the market.

The momentum from the prosperous Premier Sale flowed through to the first day of the Select Sale with the aggregate, average, median and clearance rate tracking higher than Day One of the Sale last year, with two days of the Sale remaining. . . 

 

American Cattlemen's photo.


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

May 28, 2015

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.


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