New Zealand dairy giant Fonterra Co-operative Group has increased its total forecast payout for the current season by NZ$0.10 to $4.15 kg/ms (US$2.91), on the back of higher commodity prices, with the milk price component of the payout increasing from $3.60 to $3.70 and the value add component remaining unchanged at $0.45.
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The company said that higher commodity prices in the New Year were now more than compensating for the high New Zealand dollar, and these gains could be passed on to farmers.
“Up until now, gains in commodity prices were largely being nullified by the rising dollar,” said Fonterra chairman Henry van der Heyden. “However, in the last quarter prices have continued to lift over those in the first half. That’s helping offset the fact that we will have a full season average conversion rate of 67 cents compared to an original forecast of 63 cents.”
Van der Heyden added that tight supply conditions in the global market were supporting the record commodity prices, and Fonterra was therefore on track to match the strong sales volumes of the first half with an equally good performance in the second half of the year.
In addition, van der Heyden said the longer term outlook for prices was positive which augured well for a higher forecast payout next season given prevailing exchange rates.
“While it is early days, we believe the longer term outlook for commodity prices is positive which points to an improved payout next season, but a key unknown remains the exchange rate. A continually climbing NZ dollar could eat away some or all of our market gains,” he said.
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