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Fonterra has bumped up its forecast milk price for the season to a whopping $8.30 per kilogram of milksolids, a new record.

The 50c increase from the record $7.80 announced last month comes on the eve of the dairy heavyweight’s annual financial results for the 2013 year, which are expected to see it miss its 2012 prospectus profit target.

The increase along with an estimated 2014 dividend of 32c per share amounts to a forecast cash payout for Fonterra’s farmers of $8.62.

Chairman John Wilson said the record milk price reflected continuing strong international dairy prices, particularly for whole milk powder driven by demand from Asia, and especially China.

An $8.30 milk price adds up to $5 billion more for the New Zealand economy from the dairy industry than it received last year, said BNZ economist Doug Steel.

He said the size of today’s jump was a surprise though international prices have clearly been strong, but more surprising was the timing of Fonterra’s announcement – the night before its annual result.

The announcement is bittersweet as it carried a warning from chief executive Theo Spierings that New Zealand’s biggest company also faces headwinds, especially in the first half of the current financial year when earnings are expected to be “significantly lower” than in the first half of the 2013 year, on which it will report tomorrow.

The higher cost of milk would make it more difficult to drive earnings growth in Fonterra’s consumer and foodservices businesses, he said.

“We also expect to see a negative impact on our product mix returns during the first half of the current year as milk powder prices significantly outpace the relative prices of cheese and casein,” he said.

Source: Stuff

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