(Corrects cash payout and percentage gain in 4th graf)
* Fonterra ups 2013/14 milk price f'cast by 7 pct
* Climbing global dairy prices, lower NZD boosts farmer
* High prices may sting margins, investment fund slides
By Naomi Tajitsu
WELLINGTON, July 31 New Zealand's Fonterra
raised its milk price forecast for the upcoming 2013/14
financial year by 7 percent on Wednesday due to climbing global
dairy prices and a weaker New Zealand dollar.
The world's largest dairy exporter also said that higher
prices may sting its cost margins in the financial year
beginning in August, prompting a 3 percent slide in the Fonterra
Sharetrading Fund as the announcement followed a
downward revision of its 2012/13 earnings forecast last week.
The cooperative, New Zealand's largest company, raised its
forecast payout to shareholder farmers to NZ$7.50 per kg of milk
solids from an initial forecast before retentions of NZ$7.00, in
line with market expectations for an upward revision.
With the addition of a 32-cent forecast dividend, this would
result in a final cash payout of NZ$7.82, a jump of roughly 28
percent from a forecast payout of NZ$6.12 for the 2012/13
financial year ending on Wednesday.
Analysts said the higher forecast would contribute an
additional 1.6 percent to the country's nominal economy after
factoring in a widely expected rise in production in the 2013/14
year. The dairy sector generates more than 7 percent of the
The higher forecast comes as overall global dairy prices set
at Fonterra's benchmark fortnightly auctions remain strong due
to a fall in milk production during the northern hemisphere
In April, prices hit their highest level since the trading
platform began around 2008, and have hovered near those levels
A slide in the New Zealand dollar from a 20-month
high versus the U.S. dollar since April has also been positive
for the country's dairy industry, as a historically strong
currency has constrained demand for exports.
Analysts said that the higher forecast also reflected
better-than-expected recovery from drought conditions in the
country that sapped production earlier this year.
"We think New Zealand production can rebound quite strongly
from the drought," said Westpac economist Nathan Penny, who had
expected a forecast price of NZ$7.40.
"More than likely Fonterra has pencilled in less production,
and with less production, prices would go higher," he added.
He added that he saw the potential for the forecast price to
rise further throughout the year if global dairy prices continue
to rise, or if the New Zealand dollar pushes lower.
Fonterra added that higher global dairy prices would raise
its costs to buy liquid milk from farmers to process into milk
powder and other materials to export to countries including
China, a major importer of milk powder.
"During the first half of FY14 we are likely to have to
absorb some of the expected substantial increases in the cost of
goods arising from current high commodity prices, and this could
have an impact on margins," CEO Theo Spierings said in a
Shares in Fonterra's sharetrading investment vehicle fell to
NZ$7.25 in early trade, retreating after they closed at NZ$7.49
on Tuesday on concerns that higher prices could weigh on
earnings from the company's processing operations.
"The dairy payout is great for dairy producers as it's
supporting their businesses after a touch drought period," said
Shane Solly, portfolio manager at Mint Asset Management.
"But the higher cost base is impacting on the potential
returns on the Fonterra share fund, so we're seeing a fall in
Fonterra is preparing to enter China's booming branded
infant formula market later this year. Earlier this month, it
cut the price of its Anmum brand of maternal milk products sold
in the country as Beijing reigns in sky-high prices for formula
(Reporting by Naomi Tajitsu; Editing by Lisa Shumaker)