Friday, March 29, 2024

Fonterra lifts forecast for this season’s milk supply

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Fonterra anticipates bigger growth in milk supply this season with dry conditions not as bad as last year’s drought, and the incentive of a higher forecast farmgate payout.
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New Zealand milk volumes are forecast to rise 7.5% to 1.57 million kilograms of milksolids (kg MS) in the 2013-14 season.

This was up from a previous expectation of 6.4% growth, Fonterra said.

Based on the forecast payout to farmers of $8.65/kg MS, that implies Fonterra will pay some $13.61 billion to source local milk in the season.

Fonterra’s NZ-sourced milk costs were $8.64b in the year ended July 31, 2013.

It paid $5.84/kg MS to farmers.

The Auckland-based company collected 151m kg MS in February.

This compared to 137m kg MS a year earlier when the North Island was in the grip of the worst drought in seven decades.

Total collection in the season to date was up 4.9% to 1.27m kg MS.

“While we are seeing dry conditions impact some regions of the country, particularly Waikato and Northland, these are not as widespread as the same time last year,” Fonterra said.

“The lift in Forecast Farmgate Milk Price may have a positive influence on milk supply increasing above our previous forecast.”

Fonterra’s board has kept the increase in the forecast payout 70 cents lower than what it would be using calculations from the regulated milk price manual.

This was due to a production mismatch where the price of whole and skim milk powder surged ahead of higher margin products such as cheese and butter.

In December, Fonterra said it was limited by its plant configuration on how much milk powder it can produce.

It had about 70% of production capacity for milk powder and the remainder making cheese and casein.

Last week Fonterra said it would give an update on the business when it reports its first-half result on March 26.

It had previously forecast 2014 earnings before interest and tax (EBIT) to fall to between $500m and $600m from normalised EBIT of $1b in 2013.

Units in the Fonterra Shareholders’ Fund gained 0.8% to $5.98.

They have increased 2.2% this year.

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