Chinese dairy giant Yili will pay $588 million for dairy co-op Westland Milk, it was announced overnight.
In his weekly commodities report, he says “unfortunately for farmers, a second forecast cut is likely to follow later this month.”
Penny anticipates that Fonterra will cut its 2018-19 forecast payout of $7/kgMS near to the bank’s forecast of $6.50/kgMS.
“Still, milk price forecasts at $6.70/kg and $6.50/kg, respectively, make for relatively healthy reading. Nonetheless, these moves emphasise that dairy markets can and do change quickly,” says Penny.
In a shock move, Fonterra today reduced the 2017-18 final payout by 5c to $6.70/kgMS.
In May Fonterra lifted the 2017-18 season payout by 20c to $6.75/kgMS; the season ended May 31 this year.
The co-op has also signalled the 10c/share dividend paid out in April would not be topped up.
Penny says Fonterra’s decision to trim 5c off the 2017-18 forecast price was a rare move.
“This departs from usual practice as the new forecast differs from that calculated under their Milk Price Manual.
“Fonterra also advised that it intends to pay no further cash dividends this year. Back in May it had announced that an additional 5-10 cents/kg would be paid,” he says.
Penny says in sum, farmers’ 2017/18 forecast incomes are 10-15 cents/kgMS lower than previously expected. “Collectively, this equates to between a $150m and $225m hit to 17/18 farm incomes."