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Fonterra slashes FGMP forecast citing 'continuing volatilty'

By Mark Astley+

29-Jul-2014

Fonterra slashes FGMP forecast citing 'continuing volatilty'

Fonterra has reduced its farmgate milk price (FGMP) forecast for the 2014/15 to NZ$6.00 (US$5.11, €3.80) per kg of milk solids (kgMs), citing "continuing volatility."

New Zealand-based cooperative Fonterra, the world's largest dairy exporter, announced earlier today it had revised its FGMP forecast for the 2014/15 season - knocking a dollar off the NZ$7.00 (US$5.96, €4.44) per kgMs announced earlier this year.

Alongside the opening NZ$7.00 announced in May 2014, Fonterra forecast milk supply for the 2014/15 season of 1.616bn kgMs.

Based on this estimate, today's revision represents a collective drop in payments to Fonterra suppliers of around NZ$1.6bn (U$1.36bn, €1bn). 

The New Zealand dollar fell around 0.4 cents against the US dollar from more than NZ$0.8545 to less than NZ$0.851 following Fonterra's FGMP announcement.

Price volatility

Commenting, John Wilson, chairman, Fonterra, attributed its reduced FGMP forecast to continuing price volatility.

This volatility, Wilson said, was no more evident that on the GlobalDairyTrade auction platform. 

"We have seen strong production globally, a build-up of inventory in China, and falling demand in some emerging markets in response to high dairy commodity prices," said Wilson. 

On the back of Fonterra's FGMP forecast reduction, Wilson urged budgetary caution among its farmers.

"The drop in the forecast farmgate milk price will have an impact on our farmers' cash flow," he said. "We continue to urge caution with on-farm budgets in lights of the continuing volatility in international dairy markets."

Estimated dividend

Alongside its FGMP forecast, Fonterra announced an estimated dividend range of between NZ$0.20 (US$0.17, €0.13) and NZ$0.25 (US$0.21, €0.16) per share 

This estimate reflects Fonterra's expectations for improved returns on its value-added and branded products, said Theo Spierings, CEO, Fonterra.

"As we continue to drive for growth in our consumer and foodservice business, during the first half of the current financial year we expected reduced cost of goods arising from lower dairy commodity prices to have a positive impact on returns," he said.

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