The Weekly Dairy Report: Fonterra forecast stable but is it at the expense of the dividend

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The Weekly Dairy Report

More rain this week increases the spirit of those that received, but some dry areas in the south  still missed decent amounts, and are now very concerned as a cooler autumn is now arriving.

Many areas of the north and the south are now achieving "normal' autumn growth rates, and strategic use of N fertiliser is showing good returns on the West Coast, while in Southland they are looking for more baleage for winter feed, after the slow spring delayed supluses to harvest.

Many are making early steps for drying off some of the herd, paddock round length is being extended with growing conditions, and some pastures are being resown to allow good establishment prior to the winter.

Still uncertainty in the market place, with Friesland Campina declining to forecast 2015 payout in a precarious supply and demand balance in Europe, caused by the quota removal.

And after warnings by Rabobank analysts that the recent price surge was hard to justify, the market reflected just that, with a big 8.8% correction at last week’s dairy auction.

Whole milk powder prices dropped below $3000/tonne again, and this will put pressure on maintaining this year’s payout price.

Fonterra did however lift prices offered for organic milk, and buy a share of a Chinese infant formula company, and commentators are suggesting dividend predictions could lift on the back of these cheaper prices for raw milk.

Fonterra's half year result however,  saw the predicted payout of $4.70 remain firm, but the lower end of the dividend fall lower, now in the 20-30c range as operating profits dropped by 16%.

They declared an interim dividend of 10c a share, and announced that the  milk production forecast is about 2% behind last year.

Overall not too many surprises for the market, and farmers will be pleased payout priority seems to be ahead of the dividend, in a very difficult financial year.

Synlait also updated their forecast upward into the $4.50-$4.70 range, stating dairy markets were improving, although they still remain cautious on the impact of quota removal  in Europe, and believe price volatility would remain.

Optimism for the future amongst farmers however is still strong, shown by the lift in dairy farm prices, although numbers of properties sold did drop over the last period.