Cooperative cuts dividend on falling earnings

Shares of Fonterra immediately fell 3.5% as the company cut its dividend. New Zealand's 10,000 dairy farmers will receive a dividend of 20-30 cents, down from the previous forecast of 25-35 cents.

I previewed the results yesterday.

The company said in December it wanted to hike its dividend to compensate for low milk prices but it announced just the opposite. The 2014-15 price forecast remained at $4.70/kg, nearly half of the record $8.40 a year earlier.

Chairman John Wilson:" Our half-year results are a snapshot of tough conditions in dairy with variable production, demand and pricing."

The good news is on the supply side where the seasonal forecast increased 2% from last year.

"Oversupply from dairy producing regions around the world in the early months of the financial year saw the trade-weighted GlobalDairyTrade price index hit a five-year low in December. Supply outweighed demand and buyers undervalued milk, which was reflected in prices that declined to unsustainable levels. Lower commodity prices placed downward pressure on our Farmgate Milk Price in the first half.This was partially offset by currency, with a benefit of approximately 30 cents per kgMS to the forecast Farmgate Milk Price, as at 31 January.

"Volatility continues to influence international dairy commodity prices and given this, we recommend caution with regards to on-farm budgets," said Mr Wilson.

The New Zealand dollar reaction to the news has been nil. NZD/USD trading at 0.7652.