Article – BusinessDesk
Feb. 27 (BusinessDesk) – Fonterra Cooperative Group farmers will get some breathing space in being fully shared up after the world’s biggest dairy exporter announced a bonus issue of stock and offered more flexibility for those growing milk production.
Fonterra’s bonus share issue, flexi contracts ease pressure on farmers facing drought
Feb. 27 (BusinessDesk) – Fonterra Cooperative Group farmers will get some breathing space in being fully ‘shared up’ after the world’s biggest dairy exporter announced a bonus issue of stock and offered more flexibility for those growing milk production.
Fonterra shares, which trade on a closed market managed by the NZX, last traded at $7.17, or about 59 percent higher than the $4.52 fair value price they had before the Fonterra Shareholders’ Fund units they’re tied began trading on Nov. 30.
Farmers have to hold the shares in proportion to their production, which can be a financial burden for those fresh to the cooperative or increasing output. They’re feeling the squeeze even more at present, with drought declared in Northland and dry weather elsewhere pushing up feed costs.
“The bonus share issue will ease pressure on farmers, some of whom have struggled to stay in the co-op due to the requirements to meet the share standard, particularly given the tough conditions many suppliers are facing at the moment,” said Ian Brown, chairman of the Fonterra Shareholders’ Council.
The bonus issue of one share or unit for every 40 held on April 12 will increase total shares on issue by 2.5 percent. Chief executive Theo Spierings said it means that an estimated 95 percent of farmers won’t need to ‘share up’ to grow their milk production this year.
Fonterra will also make it easier for farmers by offering modified growth contracts, giving them more time and options to buy shares to match production.
A new flexi contract linked to the company’s Farmgate Milk Price would require farmers to purchase 50 percent of the shares upfront for growth milk, with the remainder having to be purchased only when the price “was above a certain threshold.” The threshold would be set periodically but is currently $6 per kilogram of milk solids.
Fonterra would also offer a “modified growth contract” allowing farmers to purchase a minimum 10 percent of shares upfront for growth milk with no further purchases required until the fourth season.
The company also flagged its intention to allow a further supply offer for shareholders to sell the economic rights of some of their shares into the Fonterra Shareholders’ Fund once its interim results have been published.
Fonterra today held its forecast Farmgate payment unchanged on expectations of higher global prices in the second half of the season.
Farmers are expected to be paid $5.50 per kilogram of milk solids, with forecast earnings per share unchanged at between 40 cents and 50 cents.