Dairy giant Fonterra is holding to a forecast payout potentially worth billions as international prices shows signs of strengthening later in the season.
The farmer co-operative, which processes about 92 per cent of the country's milk, earlier this month said the strong currency and a drop in international prices meant the board would review the 2010/11 forecast of $6.90-$7.10 a kilogram of milksolids before retentions.
A $7.10 payout based on stable production levels could be worth about $9.1 billion to its 10,500 farmers.
Chairman Henry van der Heyden today said although international prices had declined in recent months, there were a number of factors signalling a potential improvement later in the year.
"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," van der Heyden said.
"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."
Fonterra's online auction this month made record sales worth $240 million, although the average price of a basket of products fell 8.3 per cent, having fallen 13.7 per cent the previous month.
Chief executive Andrew Ferrier said the current season was 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," Ferrier said.
"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," he said.
"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, Ferrier said.
Fonterra Shareholders' Council chairman Simon Couper said many farmers were 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,"
Couper 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."
* 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.
Fonterra holds to $9.1 billion payout forecast
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