Fonterra milk payout drops by 35c

Dairy Product Prices Rise for First Time in Five Auctions

Dairy Product Prices Rise for First Time in Five Auctions

Chairman John Wilson said the cut reflected ongoing volatility in global dairy prices and cited a 10 per cent drop in the price of whole milk powder since August 1.

"What is driving this forecast is that despite demand for dairy remaining strong, particularly in China, other parts of Asia and Latin America, we are seeing strong production out of Europe and continued high levels of European Union intervention stockpiles of skim milk powder".

Last week, the company flagged that its arbitration with French company Danone SA had an impact on its earnings guidance for the season but none on the farmgate milk price.

"I don't think farmers need to be too concerned at the moment.we're probably still looking at a milk price over NZ$6.00 so most farmers should still be making a profit this season at that kind of level", Castleton said.

Fonterra also cut its forecast New Zealand milk collection for this season, by 1 per cent to 10525 million kilograms of milk solids from the 10540 million kilograms it projected in October, which itself was a downgrade.

ASB rural economist Nathan Penny said that there was typically a lag between and that price movements at dairy auctions were far more pronounced than those in retail prices.

Dairy product prices rose overall at the GDT auction, increasing for the first time in five auctions, amid expectations that dry weather conditions in New Zealand might ease milk production.

Shares in Fonterra closed flat yesterday at $5.80. The main counter-weighting factor operating was robust European Union production. Revenue of $4billion was up 4% on the previous corresponding period.

Chief executive Theo Spierings said Fonterra started the year with record low inventory after the second straight year of low spring milk collections from New Zealand due to wet weather.

"The lower volume on offer appears to have provided some support as almost all of this product was sold", Castleton said.

The lower gross margin was in line with the second half of previous year.

"Butter was last at this price level in the early months of this year", Castleton said.

Gross margin in the consumer and food service business fell from 31% in the pcp to 24%.

"We are focused on continued tight operational and financial discipline and a key eye on our customers' needs to maximise sales opportunities".

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