Fonterra announced at its interim results meeting last month it would be splitting its final dividend payment in half and bringing those payments forward so that a forecast 10 cents/share is paid in May and the final payment, also forecast to be 10c/share, is paid in August.
Usually the co-operative makes one final dividend payment in October following the release of its full-year accounts, while its interim dividend is paid in April.
This year the co-op declared an interim dividend of 20c/share after it forecast an earnings per share for the full season of 45-55c.
DairyNZ economist Matthew Newman said splitting the full-year dividend into three tranches rather than two would help cashflows this financial year because the second tranche of a forecast 10c/share payment would be brought forward out of next season into the current financial year.
For an average farm producing 150,000kg milksolids (MS) that equated to an additional $15,000/share or kg MS for a fully shared-up farmer that would come into this financial year.
The final payment would fall into next season’s payments and come in August at a time when cashflows are at a low ebb.
“But farmers have to remember there won’t be anything extra in the October 20 payment and some farmers have come to rely on that too,” Newman said.
The juggle-around of payments means DairyNZ is now predicting an in-season payment for this financial year of $3.90-$4/kg MS for a fully shared-up farmer.
That includes 30c/share but does not include any payments from Fonterra’s Co-operative Support loan scheme.
Farmers were able to borrow 50c/kg MS interest-free on share-backed milk produced from June 1 to December 31 last year.
Newman said for most farmers’ milk production over that period would equate to about 60% of their full season’s production so the loan would equate to 30c/kg MS.
While that would add to the in-season payments it had to be remembered it was still a loan and would have to be paid back.
Under the terms of the loan that would happen when milk price exceeds $6/kg MS.
Currently no analysts are predicting the milk price to hit that level next season.
DairyNZ is preparing cashflows for next season but, like farmers and analysts, is having difficulty predicting where payments will end up.
Newman said early forecasts have fully shared-up farmers receiving $5/kg MS in-season which includes a dividend payment.
NZX’s AgriHQ analysts are predicting a milk price of $4.55/kg MS at an exchange rate of US$0.67 and an average commodity price of US$2300/tonne.
At Fonterra’s interim results announcements indications were given that the co-op was expecting whole milk powder commodity prices to rise to US$2500/tonne by the end of the year, which is line with NZ Dairy Futures prices.
At an average commodity price of US$2500/tonne and an exchange rate of US$0.67 the AgriHQ milk price calculator predicts a milk price of $5.15/kg MS.
Figure one shows DairyNZ’s estimated average cash income received from milk production, dividend, net livestock sales and other farm cash income as well as cash expenses, including farm working expenses, interest, rent and drawings for an average New Zealand farm producing 155,000kg MS in 2015-16.
The dividend payments of 20c/share in April and 10c/share in May are included but tax is excluded.
Newman said the average farm example shows a deficit of $177,000 or $1.14/kg MS before tax which is likely to equate to about 6c/kg MS.
