Downward revision for Westland pay-out to shareholders

Downward revision for Westland Milk Products’ pay-out to shareholders

The decline in international prices for milk has resulted in Westland Milk Products, New Zealand’s second biggest dairy co-operative, revising its predicted pay-out for the 2014-15 season.

Westland’s board has advised shareholders that the predicted pay-out is now $4.90 - $5.10 per kilo of milk solids (kgMS) before retentions. This is down from the previously announced range of $5 to $5.40 per kgMS.

Chief Executive Rod Quin says prices were such that a $5.20 pay-out seemed possible before the recent auctions, as buyers looked to New Zealand to secure supply ahead of the dry conditions during January and February.

“However, customer sentiment has now changed significantly. Skim milk powder out of Europe is being offered at US$2,100 – 2,200 per metric tonne which, for larger global buyers, is very attractive and well below offers from New Zealand of $2,600 - $2,800/MT and the dairy auction itself, which has seen prices of $2,300 – $2,400/MT.”

Quin says the high value of the New Zealand dollar also continues to play a part in the ability of New Zealand to get good returns for its farmers in international markets.

“The New Zealand dollar remains strong at 76 - 77c against the US dollar, reflecting our official cash rate of 3.5 percent, our very low inflation, and relatively stable political environment.”

Quin says that Westland is well placed due to sales decisions made earlier in the season, but the co-operative will still have some exposure to the market place and the impact of lower prices for the remainder of the season.

“I expect the next three months to be very tough, with European processors aggressively selling their peak milk,” he says. “Not all European markets are producing more milk than last year, but enough are to drive an oversupplied situation.”

Quin says current prices are unsustainable in terms of farm economics and this itself could help turn the market around through a reduction in production. He predicts that milk supply in Europe and the United States will slow, as it has in New Zealand.

“Westland’s milk flows are now tracking down and we do not expect them to recover, given the lower pay-out forecast for this season.”

Quin says the low commodity prices show the importance of having a range of product options, with more of Westland’s range in value-added sales. He says that the value in the co-operative’s infant nutrition business is significantly higher than that received for its more traditional bulk milk power products. The company’s new nutritionals dryer (D7) at Hokitika, which will come on line in time for the 2015/16 season, is expected increase returns further compared with milk powders.

Westland has also commenced construction of its new UHT plant at its Rolleston site near Christchurch, which is aimed at the high end of the lucrative and expanding UHT milk market in China. The plant is expected to be in production by about April 2016.

ENDS

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