AUSTRALIAN Fonterra suppliers should not be worried about a recent price drop in New Zealand, according to the milk processor.
But analysts describe the current global market as a “watching brief”, with one NZ analyst predicting a farmgate price cut this season.
Last week Fonterra requested a temporary trading halt in New Zealand and Australia before announcing it would cut last season’s milk price in New Zealand from $NZ6.75 a kilogram of milk solids to $NZ6.70 (a A4c drop).
It said it would hold its previously announced normalised earnings per share guidance range of NZ25-30c (A23-27c), but indicated it would be at or slightly below this. The full year dividend would be just the NZ10 cents paid in April. It said this move ensured a strong balance sheet.
New Zealand dairy farmers get paid for the previous seasons’ production until October. This price revision means an anticipated payment would be less.
ASB senior rural economist Nathan Penny said it was nothing for Australian Fonterra suppliers to worry about.
“It is a Fonterra balance sheet problem, it is not a market price issue,” he said. “Fonterra has its competitive position to consider in Australia, independent of the Fonterra balance sheet effectively.
“NZ farmers are taking the hit on the balance sheet, (Australian suppliers) are not shareholders in Fonterra and the market-based price hasn’t done anything.”
A Fonterra spokeswoman said there would not be “any flow-on effects for the Australia business and we will not adjust our price down as a result of the New Zealand price revision”.
She said Fonterra’s Australian opening price of $5.85/kgMS was a “responsible price based on our product mix”.
Mr Penny predicted the Fonterra New Zealand price of $NZ7/kgMS would be revised later this month. He said a 9 per cent drop on the Global Dairy Trade since May came as Chinese demand decreased due to a weaker Yuan.
ASB has predicted a $NZ6.50/kgMS ($A5.88/kgMS) for this season, which is under review.
Rabobank Australian dairy analyst Michael Harvey said there was no expectation that the Australian farmgate milk price would be revised as Australian processors were not as “aggressive” with pricing as their Kiwi counterparts.
Source: The Weekly Times