World dairy prices indicate a milk price of $9/kg milksolids but Fonterra will remain at $8.30 for the time being.
The giant exporter had reached its powder-manufacturing capacity and would not forecast a milk price higher than it could afford to pay at this stage of the season, chairman John Wilson said.
“The board has the discretion to pay a lower farmgate milk price than that specified under the manual, if it is in the best interests of our co-operative.
“This is a decision to ensure we protect and strengthen our co-operative in the longer term,” he said.
The prices of Fonterra’s supply shares and fund units, which have dropped 50c in the past week, are likely to fall further with this unexpected news.
With its processing mix Fonterra can turn 70% of the milk it receives into powder, leaving the remainder to cheese and casein products, which are selling at much lower world prices.
The extreme disparity between powder prices and those of other dairy products also constrains Fonterra’s ability to make value-added profit.
The earnings forecast for the 2014 financial year has been cut to $500 million-$600m, meaning a dividend forecast for the full year of 10c a share and unit.
Fonterra also announced investment of $235m for a third powder drier at Pahiatua.
