Fonterra Maintains Payout Forecast as Drought Threatens Supply

Drought was declared in New Zealand's Northland province this week, and Waikato, the country’s biggest milk-producing region, is being closely watched.

Feb. 27 (Bloomberg) -- Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, maintained its forecast payment to farmers as New Zealand expects drought to spread across the North Island, threatening to curb milk supply.

Fonterra expects to pay its 10,500 farmer shareholders NZ$5.50 ($4.54) per kilogram of milk solids in the 2012-13 season, unchanged from a December forecast, the Auckland-based company said in a statement. The company, which must review the outlook every quarter, also maintained its earnings-per-share forecast at 40 New Zealand cents to 50 New Zealand cents.

Drought was declared in Northland province today and Waikato, the country’s biggest milk-producing region, is being closely watched, Minister for Primary Industries Nathan Guy said in a statement. Declarations in other regions are likely soon, he said. Whole-milk powder prices are still 43 percent higher than mid-July after the worst U.S. drought since the 1930s boosted feed costs, prompting farmers to cull herds.

"We had a strong start to the season and milk collection volumes were running 6 percent ahead of last season on a year- to-date basis," Fonterra Chief Executive Officer Theo Spierings said in the statement. "The dry conditions mean we are currently forecasting total milk collection volumes to finish approximately 1 percent ahead for the full season."

The forecast payout could be adversely impacted by a "further significant strengthening" of the New Zealand dollar, Fonterra said today. The local currency has risen 2.1 percent against the U.S. dollar in the last six months.

Fonterra also today announced a bonus share issue for farmer shareholders and unit holders of 1 additional unit for every 40 held on April 12, in a separate statement.