Fonterra says next season's payout may top $8.00

Fonterra today announced an opening forecast payout for the 2010/11 season of $6.90-$7.10 and said the full payout for the season might top $8.00.

This payout - before retentions, combines a forecast milk price of $6.60 per kilogram of milksolids (kgMS) and forecast "distributable profit" of 30-50 cents per share.

Fonterra Chairman Sir Henry van der Heyden said the opening milk price forecast represented an increase of 50 cents on the forecast price for the current season.

Based on these forecasts and targets, Fonterra farmer-shareholders on average would receive a total payout before retentions of $6.90-$7.10 for each kilogram of milksolids backed by a Fonterra share.

Van der Heyden said if international dairy prices and foreign exchange rates were to hold to current levels for most of the coming year, then it was possible that the 2010/11 payout could be a record and well over $8.00.

"However, the forecast payout has been set at $6.90- $7.10 reflecting a more cautious outlook given the high degree of volatility in the market."

Fonterra last month announced it was increasing its forecast milk price payoutfor this season by 40 cents, to $6.10 per kilogram of milksolids.

Van der Heyden said today's forecast was based on what the market "looks like right now, but we know that there is substantial volatility in the market. The reality is that we are seeing big swings in foreign currencies and turmoil in some economies. These factors could have a big impact on demand for dairy products and the prices we ultimately realise.

"With this in mind, we believe a payout forecast in the range of $6.90-$7.10 is appropriate.

"Accordingly, farmers doing their budgets for the coming season should base their planning around a payout broadly in line with this year.

"If prices hold up throughout next season, we could be looking at a significant improvement during the course of the year. But at this stage, in the current volatile environment, it would not be sensible to count on this."

Fonterra Shareholders' Council chairman Blue Read said the forecast cashflow would be useful for many farmers still feeling the impact of the recent drought.

The average farmer could benefit by about $120,000, based on the average farm producing about 120,000 kg of milk solids per season.

However this was gross income, before tax and working costs were taken into account, he said.

-HERALD ONLINE