#Fonterra payout good for farmers, bad for investors

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Dairy giant Fonterra has lifted its forecast farmgate milk price to a near record high, and economists are predicting major financial benefits for the New Zealand economy.
Milk prices have fluctuated in recent years, but farmers are feeling cautiously optimistic.
The news couldn’t have come at a better time for cockies, who are flat out milking and calving.
«It’s great news really,» says Federated Farmers’ north Canterbury dairy chair Kieran Stone. «It’s quite a big jump and not really expected. It has been reasonably high up till then, at $7, and now to go an extra 50 cents. But the only thing is we’ve got to be a bit careful because we’ve heard it before, and then at Christmas time it’s gone back to $5.50.»
Fonterra also bumped its forecast cash payouts to $7.82, just 8 cents off the record high of $7.90.
The farmgate milk price has been volatile over the past six years, from a low of $4.72 in 2008/2009 to a high of $7.60 two years later.
While the news is good, farmers won’t be rushing out to spend up just yet.
«If someone’s been thinking about renewing a tractor after Christmas, if it’s all go they’ll probably be looking at spending,» says Mr Stone. «There’ll definitely be a flow-on effect.»
And it’s a flow-on effect those supplying the industry are feeling optimistic about.
«They could update a lot more of their equipment if there is a bit more money available, and they might be looking for a few extra items that they haven’t been able to purchase in the past,» says ATS Rakaia manager Maree Smith.
While dairy farmers aren’t getting too ahead of themselves, economists are not only predicting higher milk prices but also increased production. Economists predict the lift in milk prices and an increase in milk production could boost the New Zealand economy by $3.5 billion.
Foreign workers were also excited about the possible opportunities a cash injection would give the industry.
«I’m hoping that maybe some of my classmates back at university who took agriculture might actually have the chance to come here as well,» says dairy assistant Racky Berdido.
With foreign workers providing labour relief to farmers across the country, there’s every chance there will be more work for those willing.
Bad news for investors
But what’s great news for Fonterra’s farmers and the economy is not such good news for outsiders who invested in the Fonterra Shareholders’ Fund.
The more Fonterra pays for its raw milk, the worse it gets for them.
The forecast milk price is going up fast, but Fonterra’s share price fell today. It seems that for investors, Fonterra can have too much of a good thing.
«The increased payments to farmers actually results in higher costs to Fonterra and therefore lower profit margins made on its products that it sells to the consumer,» says Brooke Bone of Milford Asset Management.
Investors in the Fonterra Shareholders’ Fund don’t receive the raw milk payout. They receive dividends from the money Fonterra earns turning that raw milk into finished products, and that market’s just getting tougher.
«It’s a very competitive worldwide business, so Fonterra’s got to be on top of their game all the way through this,» says Bruce Wills of Federated Farmers. «So high prices don’t just mean it’s an easy run.»
Costs are a big concern for Fonterra. It’s cutting around 300 management jobs and forecasts this year’s earnings will be down 7 percent.
Fonterra warned investors today that over the coming months it expects it is going to have to absorb some big cost increases because of the rising commodity prices.
«We have been hit with a very fast, rapidly rising sort of milk price over the last six months, which has meant that it hasn’t been able to adjust its prices, which it charges for its goods to consumers quickly enough,» says Mr Bone.
Investors will learn more when it announces its annual result in September.
 
Source: 3 News

Mirá También

Así lo expresó Domingo Possetto, secretario de la seccional Rafaela, quien además, afirmó que a los productores «habitualmente los ignoran los gobiernos». Además, reconoció la labor de los empresarios de las firmas locales y aseguró que están «esperanzados» con la negociación entre SanCor y Adecoagro.

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