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Fonterra maintains 2015-2016 forecast farmgate milk price

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Staff writer ▼ | December 11, 2015
Fonterra
Dairy   Unsustainably low milk prices will continue

Fonterra Co-operative Group maintained a forecast Farmgate Milk Price of $4.60 per kgMS.

Along with the November announced estimated Earnings Per Share range of 45-55 cents, this amounts to a total available for payout of $5.05-$5.15 kgMS and would currently equate to a total forecast Cash Payout of $4.95-5.00.

Fonterra is required to consider its forecast Farmgate Milk Price every quarter as a condition of the Dairy Industry Restructuring Act (DIRA).

"We are looking out over the next nine months and basing our forecast on the view that current, unsustainably low prices will continue to impact production levels globally," Chairman John Wilson said.

"We support the consensus view in the market that an improvement will take place, but the market remains volatile. While there are signs of a recovery, particularly in China, we still need the imbalance between supply and demand to correct.

"That imbalance is starting to reduce with year to date production in the United States up by only one per cent and slowing, and New Zealand volumes expected to be down by at least six per cent over the current season. In the EU, however, farmers are continuing to push production, currently up one per cent.”

Fonterra’s voard also reviewed the Fonterra Support loan. The loan was made available on production from June 1 to December 31. The loan of 50 cent per kgMS is interest-free until May 31, 2017 with repayments triggered when the Farmgate Milk Price exceeds $6 per kgMS.

Wilson said the Board’s scheduled review had weighed up the improved Farmgate Milk Price and higher Earnings Per Share forecast since the loan was launched, when the milk price was at $3.85, and the need for financial discipline from the Co-operative.

The voard had decided not to continue the Co-operative Support loan for milk collected after December 31, but will monitor conditions and assess the need to continue the support if market conditions changed later in the season.

"We will provide some $390 million in support to around 75 per cent of our farmers through the most productive half of the season, including the peak.

"Farms typically produce 60 per cent of their milk in the first half, with production beginning to taper off from December, so we have provided support when it is needed the most.”


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