Ann: FORECAST: FSF: OPENING FORECAST FARMGATE MIL

• Release Date: 29/05/13 11:00
• Summary: FORECAST: FSF: OPENING FORECAST FARMGATE MILK PRICE FOR NEW SEASON
• Price Sensitive: No
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FSF
29/05/2013 09:00
FORECAST

REL: 0900 HRS Fonterra Shareholders' Fund (NS)

FORECAST: FSF: OPENING FORECAST FARMGATE MILK PRICE FOR NEW SEASON

Fonterra Co-operative Group Limited today announced an opening forecast
Farmgate Milk Price of $7.00 per kgMS for the 2013/14 season - up $1.20 on
the current season.

In addition, the Co-operative confirmed a higher Advance Rate schedule, with
an opening rate of $5.00 per kgMS, reflecting the higher forecast Farmgate
Milk Price for 2013/14.

The Board will announce its forecast Cash Payout - which comprises the
Forecast Farmgate Milk Price and dividend for the 2013/14 season - in July
when Fonterra's budget is completed and approved.

Chairman John Wilson said the higher forecast Milk Price for the new season
reflected continuing strong international prices for dairy.

"The general consensus is that dairy commodity prices have peaked but will
continue at or near current levels until the fourth quarter of 2013. Most
external forecasts point to prices remaining relatively strong through 2014."

Commenting on the Advance Rate increase Mr Wilson said: "A stronger forecast
Farmgate Milk Price, supported by our improving cash flows and strong balance
sheet, means we are able to lift the Advance Rate for the new season to
ensure farmers receive higher payments for their milk early in the season.

"A large proportion of our farmer shareholders have experienced drought
conditions, which have had a significant impact on feed costs and production,
resulting in early drying off of their herds.

A higher Advance Rate at the start of the new season will help our
shareholders in managing their farming businesses to ensure an ongoing supply
of high quality milk to the Co-operative," said Mr Wilson.

Market Factors Influencing the Milk Price

Chief Executive Theo Spierings said the fundamental supply and demand balance
has shifted: "Global milk production growth is slowing as a result of
unfavourable weather conditions in many key milk production regions.

"Although we are seeing modest production growth in the USA, recent cold
conditions in Europe have had a negative impact on crops and dairy, and the
outlook remains mixed.

"Milk production growth in 2013 for the top 15 exporting countries is
projected at 0.5 per cent or 1.2 billion litres - well below the 1.8 per cent
(4.5 billion litres) growth levels we saw in 2012.

"In general, the global economic outlook remains steady but with some
downside risk. In the USA modest growth continues, while China has managed a
soft landing with the consensus on growth at around 7.8 per cent.

"While we expect most farmer shareholders will welcome a higher Milk Price,
we will continue to closely monitor these key factors contributing to
Fonterra's opening forecast for the 2013/14 season."

Mr Spierings said Fonterra was currently preparing its budgets for 2014,
however, shareholders and unit holders should expect the strong uplift in
international dairy powder prices to create a more challenging environment
for Fonterra's earnings in the first half of the 2014 financial year.

2012/13 Forecast

The Co-operative also confirmed today that it is holding its current forecast
Farmgate Milk Price for the 2012/13 season at $5.80 per kgMS, and a forecast
dividend of 32 cents per share, amounting to a cash Payout of $6.12 for a
fully shared-up farmer.

"We are maintaining our current season forecast but advising farmers to be
cautious in managing their budgets as we have seen a sharp drop in milk
volumes as a result of the drought, and recent declines in GlobalDairyTrade
auction results," said Mr Wilson.

Raw Milk Regulation Change

Fonterra welcomed changes to Raw Milk Regulations that will apply from June
1.

"This season is the last when competitors can cherry pick when they get milk
during the season, and it has coincided with the drought and the recent
higher export prices.

"This meant Fonterra was required to supply large volumes of milk to
competitors when milk flows were very low because of the drought, reducing
the utilisation of our factories.

"At current prices, we estimate that the milk we have supplied our export
competitors from March to May will cost our shareholders about $25 million in
lost earnings, amounting to 1.5 cents per share in lost earnings.

"At the same time we estimate that due to the drought the benefit to our
competitors is far greater, with the potential to add between 5 - 30 cents
per kgMS  to their performance.

"As this year's drought has shown us, the Government did the right thing in
changing the Raw Milk Regulations last year," said Mr Wilson.

Note:  currency is New Zealand dollars unless otherwise stated.
End CA:00236768 For:FSF    Type:FORECAST   Time:2013-05-29 09:00:43