Fonterra Cooperative Group Ltd., the world's biggest dairy exporter, said first-half sales rose 9 percent aided by an increase in New Zealand milk production.
Sales rose to NZ$6.55 billion ($4.6 billion) in the six months ended Nov. 30, from NZ$6.03 billion a year earlier, with ingredients volumes up 20 percent at 1.15 million tons, the Auckland-based company said in a statement.
Fonterra accounts for about 40 percent of the international trade in dairy products, selling yogurt, cheese, and supplements in 140 countries under the Anchor, Fernleaf and Anlene brands. Recent gains in world prices will help replace earnings lost to the rising New Zealand dollar, the company said.
``The supply and demand situation is very tight,'' Chief Executive Officer Andrew Ferrier said in an interview. ``We don't see a change in the market structure in the near future.''
World dairy prices have gained 27 percent in the past three months and are 17 percent higher than the previous record set in August 2005, based on a Commonwealth Bank of Australia Ltd. index of U.S. dollar prices.
Prices gained on strong European demand for butter and milk powder and as drought cut output in Australia, the third-largest exporter. Strong U.S. demand, particularly for cheese, had limited volumes available for export, while Europe is also focusing more on supplying domestic markets, Ferrier said.
As a cooperative, Fonterra pays out most of its profit to the 11,300 New Zealand farmers who supply it milk. It will have NZ$2.05 billion available to pay out from this half, down 6.3 percent from a year earlier, because of the rising New Zealand dollar and lower prices in the early part of the period.
Still, the company reiterated its Dec. 15 forecast that it will probably pay its farmers NZ$4.05 per kilogram of milk solids for the year ending May 31, from NZ$4.10 a year earlier. Production in the half-year was 578 million kilograms, up 2.1 percent from a year earlier.
Ferrier said it's too early to forecast full-year output. Herd numbers are up and the company is encouraging farmers to boost output to benefit from high prices. Still, the weather through May will be the major determinant, he said.
The New Zealand dollar has gained 12 percent the past six months making it the best performing major currency in that time. It reached a one-year high of 70.98 U.S. cents on Jan. 2, and was at 69.94 cents at 5:15 p.m. in Wellington.
Fonterra buys foreign exchange contracts to cover its sales 15 months in advance. It converted its international earnings at an average exchange rate of 64 U.S. cents in the six months and may face a rate of 67 cents for the full-year, Chairman Henry van der Heyden said.
``It is very frustrating to see improved performance eroded by an over-valued currency,'' he said.
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