KEY POINTS:
The average Fonterra farmer is set to receive a payout of at least $806,180 this season, after the cooperative today boosted its forecast to a record $6.90/kg milksolids.
And there is speculation that Fonterra's 10,711 farmer shareholders will actually receive closer to $7/kg at the end of the season.
Jim Stevenson, chairman of the South Canterbury branch of Dairy Farmers of New Zealand told the Timaru Herald: "From the meetings we've had $7 is probably getting pretty realistic now".
Farmers were already having a bonanza season after the 2006-2007 payout of $4.35/kg: earlier forcasts for the year to May 2008 projected a boost of 47 per cent over last season, to $6.40/kg.
Fonterra's previous record payout, $5.33/kg in 2002, was worth $6.04/kg in 2007 dollars.
The latest forecast represents a 58.6 per cent jump of $3.18 billion in farmer revenue for this season, to $8.625b.
Fonterra has previously said it expected this year's production to be similar to last year's 1.25 billion kg milksolids, but in recent times has declined to release a public update of its production forecast.
Fonterra chairman Henry van der Heyden said today that the higher milk price being paid to farmers was due to an increase in milk supply which had flowed through to higher sales volumes at higher prices
Today's forecast comprised an increased "milk price" of $6.70 and a value-added component which remained at 20c/kg.
Fonterra has said that high commodity prices have squeezed profit margins for fast-moving consumer goods such as yoghurts.
"This (added value) part of the business continues to be impacted negatively by reduced margins which are a direct result of the higher commodity prices," Mr van der Heyden said.
The lower profitability was being balanced by improved performance from overseas investments.
Mr van der Heyden said Fonterra directors had set an interim fair value share price of $7.01, the midpoint of a range offered by independent valuers, Duff & Phelps: $6.49 to $7.54. This was an increase of 22 cents on the current shareprice of $6.79.
The net increase in the fair value share reflected "some compression" long-term margins on Fonterra ingredients, driven by the higher dairy prices, but this was offset by improvements in Fonterra's consolidated Australian operations and Soprole business it controls in Chile.
Fonterra chief executive, Andrew Ferrier said the cooperative was just beginning to see boosted production by overseas rivals to cash in on the record commodity prices.
"In particular we're seeing growth in United States skim milk powder production. We think this will factor into the market over the short-to-medium term and will bring a gradual softening to the market," he said.
The ASB Bank said in its commodities report this week that dairy prices continued to edge off recent highs, and prices for the main products have declined between 2 per cent and 10 per cent from their peaks in US dollar terms.
But Mr Ferrier said the markets were structurally stronger, with the biofuel-driven demand for grain raising global farming costs, which in turn was pushing up global food prices, including dairy. Fonterra controls nearly 40 per cent of internationally-traded dairy products.
"Combine this with the weak US dollar, and we believe the long term outlook for dairy prices will be well above traditional averages," Mr Ferrier said.
- NZPA
