INDEPENDENT NEWS

Fonterra Forecasts Payout For 2005 Season

Published: Fri 12 Mar 2004 03:15 PM
FONTERRA FORECASTS PAYOUT FOR 2005 SEASON
Fonterra Co-operative Group Chairman, Henry van der Heyden, has announced a forecast payout for the 2005 season of $3.50 kg/ms with likely variability of 5% up or down. The forecast compares with Fonterra's payout of $3.60 in 2003 and its forecast payout for 2004 of $4.15 which was reiterated today.
"It's early days yet with our budgets for 2005 not finalised and our forecast 2005 exposures not yet fully hedged. However we are in a position now to give farmers an indication of where we see the range. We will be in a position to firm that up as we finalise budgets in April. What our farmers have now is more certainty around this season and an early estimate of next season's payout and the likely variability."
Mr van der Heyden said Fonterra had consistently signalled since last year that the weaker US dollar would have a major impact on payout next season. The forecast gave farmers a very early estimate of that impact. A specific figure was premature, given that 2005 exposures were not yet fully hedged.
"Our forecasts are based on recently high prevailing exchange rates for the balance of our unhedged exposures. As recent currency fluctuations show, the situation is still volatile."
While acknowledging that currency was a big influence on payout, Mr van der Heyden said "it's important for our shareholders to recognise payout is not driven by exchange rates alone. Commodity prices could have a greater bearing on next season's payout than exchange rates."
Fonterra's costs and its ability to increase its value-added earnings were equally strong influences on payout "and we continue to work hard in these areas."
"Early indications are that these factors will work to partially offset the total impact of currency on payout. We're focused on all the major drivers of payout that we can influence, such as controlling costs, increasing our operational efficiency, optimising our production and inventories to secure the best prices, and increasing our value-add earnings from specialty ingredients products and dairy consumer products."
Mr van der Heyden said global demand and prices for dairy commodities were stable and were forecast to remain around current levels in the short to medium term.
Fonterra will announce its advance rate for the 2005 season at the end of April.
ENDS

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