Bloomberg News

Fonterra Raises Payout Forecast as Drought Boosts Milk Prices

March 26, 2013

Fonterra Cooperative Group Ltd. (FCG), the world’s largest dairy exporter, raised its forecast cash payout to farmers as New Zealand drought conditions curbed supply and global milk powder prices surged.

Fonterra expects to pay its 10,500 farmer shareholders NZ$5.80 ($4.87) a kilogram of milk solids in the 2012-13 season, compared to a December forecast of NZ$5.50, according to a statement today. While it reported a 33 percent rise in first- half net income to NZ$459 million, the Auckland-based company said that drought was likely to weigh on second-half earnings.

Whole-milk powder climbed to a record last week as New Zealand’s most widespread drought in at least 30 years curbs supply. Fonterra forecasts that milk collection will finish in line with the previous season after favorable weather resulted in record dairy production volumes in the first half.

“The drought in the third quarter has been more severe and lasted longer than anyone might have predicted,” Chairman John Wilson said in the statement. World dairy price growth was “reflecting strong demand at a time when global supply is constrained,” he said.

The dry conditions could cost the economy NZ$2 billion as economic growth slows, the government estimates. Central bank Governor Graeme Wheeler said March 14 the drought trimmed as much as 0.3 percentage point off the Reserve Bank of New Zealand’s previous projections for growth in the first half.

Fonterra was also seeing “intensified” competition in its consumer markets in the second half, especially in Australia, and saw signs of slowing demand in Asia, Chief Executive Officer Theo Spierings said in the statement.

Whole milk powder climbed to an all-time high of $5,313 a metric ton on March 19, according to Fonterra’s GlobalDairyTrade website, after New Zealand’s entire North Island was declared in drought. The previous record was $4,958 on March 1, 2011.

To contact the reporters on this story: Chris Bourke in Wellington at cbourke4@bloomberg.net; Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

To contact the editor responsible for this story: Chris Bourke at cbourke4@bloomberg.net


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