NZ’s biggest processor and the world largest exporter of dairy products, Fonterra Co-operative Goup has announced an increase of 183% on the previous year’s profit to $506 million for the 2014-15 financial year. This result has lead to a finalised payout for the corresponding season of $4.40/kg milksolids (MS) ($4.65 including dividend). Milk collected during the season was 1614m kg MS meaning the profit can be translated to $0.31/kg MS.
In a year of diminishing global dairy commodity prices and challenging sales conditions the company has faired reasonably well. Well enough to apparently give the top boss Theo Speirings a pat on the back and a $770,000 payrise.
Unfortunately dairy farmers didn’t get such a pat on the back. With last season’s payout at $4.40 and the 2015-16 season forecast payout raised by 75c to $4.60/kg MS it is still well below the $5.70/kg MS that DairyNZ has calculated farmers would need to break even for this season.
The results reflect Fonterra’s direction. Fonterra (and not just Fonterra) are lining its ducks up in a row for when the elusive demand side returns in force.
The company has manufacturing developments and plant expansions under way to increase product capability and capacity. It has secured the likes of the 10-year supply deal with Woolworths out of its Cobden Australia plant. These are the deals that companies need to validate upgrades and investment.
Synlait has also made a profit, although 46% down on last year. The drag on demand and difficult sales environment meant the sales of lactoferrin protein came in under expectation for the company. The $10.6m profit translated into a $4.54/kg MS payout for its suppliers for 2014-15. Total milk purchased for the season was 53.598m kg MS so profit can be translated to $0.20/kg MS.
Synlait has revised the forecast payout for 2015-16 down 50c to $5.00/kg MS.
Like Fonterra, Synlait is also lining up ducks. Its $250m capital programme is nearly complete and the company expects future earnings to be at levels not achieved before.
In the meantime, farmers will need to tighten their belts and hope the profit trend continues.
