Fonterra raises its forecast for farmers payouts to record NZ$8.65/kg of milk solids to farmers for 2013-2014 season, up from previous forecast of NZ$8.30/kg

Nevin Barich

WELLINGTON, New Zealand , February 26, 2014 (Australian Associated Press) – Fonterra has raised its forecast pay-out to farmers as global demand for milk powders remains strong, while holding its expectations for a reduced dividend.

The Auckland-based company expects to pay a record $NZ8.65 ($A8.06) per kilogram of milk solids to farmers in the 2013/14 season, up from a previous forecast of $NZ8.30 per kgMS, it said on Thursday morning.

The dairy company held its forecast dividend of 10 NZ cents per share.

The increase is 70 NZ cents lower than what it would be using calculations from regulated milk price manual, carrying on Fonterra's decision to pay a lower price due to the production mismatch when prices for its whole and skim milk powder surged ahead of its higher margin products such as cheese and butter.

"The increase reflects continuing strong demand for milk powders globally," chairman John Wilson said.

"The board has the discretion to pay a lower Farmgate Milk Price than that specified in the manual, if it is in the best interests of the cooperative."

Following the announcement the New Zealand dollar rose from US82.85 cents to US83.11c.

In December, Fonterra slashed its forecast dividend to 10 NZ cents from 32 NZ cents, while keeping the forecast farmgate pay-out unchanged as surging prices for whole and skim milk powder weren't matched by higher-value products such as casein and cheese.

At the time, Fonterra said it was limited by its plant configuration on how much milk powder it could produce, with about 70 per cent of production capacity for milk powder and the remainder making cheese and casein.

Mr Wilson said the company would provide an update on the business performance when it announces its first-half result on March 26.

The company's board also approved an increase of 25 NZ cents per kgMS in the advance rate schedule of monthly payments from March through to June.

BusinessDesk dwi/cdh

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