In a boost to transport firms and agricultural equipment dealers, Fonterra expects to pay 30 cents more to farmers per kilogram of milk solids, as drought pushed up global dairy prices and the co-operative lifted first-half profit by a third.
Fonterra will pay $5.80 per kgMS and expects an annual dividend of 32 cents per share, meaning a fully-shared up farmer will get a cash payout of $6.12 this season, down from $6.40 last year.
The dairy giant’s profit climbed to $459 million in the six months ended January 31 from $346 million a year earlier.
Fonterra firmed up annual earnings guidance to between 45 and 50 cents per share, from a previous range of between 40 cents and 50 cents.
“The new forecast reflects a recovery in global dairy commodity prices over the past two months,” chairman John Wilson says. “World dairy trade growth is being led by powders (combined whole milk and skim), reflecting strong demand at a time when global supply is constrained.”
The increased payout and profit will offset the worst effects of the drought on the rural economy.
Prices on Fonterra’s GlobalDairyTrade auction site have jumped 27% since February, when the dairy company’s board last reviewed the payout, with New Zealand’s supply limited by the worst drought in the North Island for almost seven decades.
Chief executive Theo Spierings says the strong first half is unlikely to be repeated in the second half of the year, with annual milk volumes expected to be in line with last season. Fonterra had previously estimated 1% growth, having already trimmed expectations from 6% growth because of the drought.
“The ongoing volatility in commodity markets could have a negative impact on product mix profitability,” he says. “In many of our consumer markets we are expecting intensified competition in the second half – particularly in Australia – and in Asia we are seeing signs of demand slowing.”
The profit gain was in spite of a 6.9% fall in sales to $9.33 billion, as the strength of the kiwi dollar eroded increased export volumes.
