Fonterra holds payout forecast for farmers

Fonterra has announced it is "reaffirming" its forecast payout range to its farmers.

The co-operative's "forecast payout range", before retentions for the 2010/11 season remains at $6.90-$7.10.

"This combines an unchanged forecast milk mrice of $6.60 per kilogram of milksolids (kgMS) and an unchanged forecastprofit after tax of 30-50 cents per share," said the company in a news release.

Fonterra chairman Henry van der Heyden said the Fonterra board had met and confirmed the milk price and "profit after tax" forecasts for the season.

Van der Heyden said there was "considerable volatility in both international dairy commodity prices and the New Zealand dollar."

And while international prices had declined in recent months, there were a number of factors signalling a potential improvement in prices later in the year. Given this, the board had decided to hold its milk price forecast.

"While there is still some uncertainty in global markets, if current commodity pricing and foreign exchange rates were at current levels for the rest of the season, then we estimate the 2010/11 payout would be marginally lower than our current forecast. However, we are holding the forecast payout of $6.90-7.10 as we are seeing signs of potential strengthening of international prices further into the season," he said.

The Fonterra Shareholders' Council issued a statement welcoming the news that there would be no change to the forecast payout.

"Many farmers are still feeling the impact of the recession and the recent drought, so the prospect of the payout for the current season staying at these levels is helpful," said Council chair Simon Couper.

"For many Fonterra farmers it is a time of consolidation and so the recovery from the 2008/09 year will be valuable," he said.

"The continued positive forecast for the current season which has just begun is encouraging, but international markets are volatile and farmers will be mindful of managing their farm businesses carefully so they are ready for any change," he said.

Fonterra chief executive Andrew Ferrier said Fonterra had completed its budget process late last month and expected its profit after tax result to be at the higher end of the 30-50 cent range.

He said the current season was still at an early stage and the outlook finely balanced.

"On the one hand, the New Zealand dollar remained relatively strong, prices for dairy ingredients had fallen from their April peak and there is some evidence global economic growth is slowing.

"On the other hand, weather in Europe, Russia, Pakistan and parts of China has affected agricultural production, although the extent of the impact on dairy is unknown. The Russian wheat export ban has contributed to a lift in prices for grain feed, which could lend support to dairy prices.

"The fundamentals for global markets continue to point to balanced supply and demand."

Fonterra's annual results and final payout for the 2009/10 season will be released on September 23.

* The milk price is the price paid to farmer shareholders for milk supplied to Fonterra on a cents per kgMS basis. The profit after tax is the total profit from Fonterra's business activities available for distribution to farmer shareholders by way of a dividend, on a cents per share basis.

The dividend is the amount of profit after tax actually paid to farmer shareholders in respect of any financial year, expressed on a cents per share basis. Retentions are the amount of profit after tax that is not paid to farmer shareholders and is retained within Fonterra's balance sheet.