Fonterra has set an opening milk price of $7.00 per kg of
milksolids for the 2014/15 season and has revised down its
forecast for the current season in response to weak
international product prices.
For the current season, which officially ends on Saturday,
Fonterra has forecast a milk price of $8.40, down from a
previous forecast of $8.65.
Along with a reconfirmed forecast dividend of 10 cents per
share, the change amounted to a forecast cash payout of $8.50
for a fully shared-up farmer for the current season, Fonterra
The cuts to the forecasts follow a string of weak auctions on
the Global Dairy Trade platform.
Fonterra said the $7.00 per kg opening forecast matched the
opening forecast provided 12 months ago at the start of the
ANZ Bank, in a market commentary, said the milk price for
next season was still strong by historical standards.
"On the face of it the decline in the payout between years is
a drag on the economy over the coming year, but that dynamic
is exaggerated," the bank said.
The coming year's payout will still be the 4th highest on
record, and from a spending point of view farmers will be in
a similar cash-flow situation, the bank said.
Average farm profitability is still expected to be nearly
$3,500/ha -- nearly three times the seven year average of
$1,150/ha - the bank said.
The forecast cash payout - which comprises the forecast
farmgate milk price and dividend for the 2014/15 season -
will be announced in July.
Fonterra is forecasting milk supply for the new season of
1,616 million kg– up 2 per cent on the current season
forecast of 1,584 million kg.
Chairman John Wilson said the new season's forecast remained
historically high, but also reflected current market
"Our farmers understand the realities of dairy commodity
price cycles, and will exercise caution at this early stage
in the season," he said.
Chief executive Theo Spierings said the shift in supply and
demand over the past few months showed that volatility
continued to exert a strong influence over the global outlook
He said there was currently more milk available for the
international market to absorb but that Fonterra expected
demand from China to remain strong.
"In Russia, there will be pressure on the balance between
imports and local production. These factors are expected to
continue influencing the supply-demand balance," Spierings
said in a statement.
High milk prices are a cost to the manufacturing, and
dividend paying, side of Fonterra, which has it the past
prompted the co-operative to artificially lower the milk
Wilson said that when the last forecast was made in late
February, the forecast farmgate milk price derived under the
Milk Price Manual was $9.35. The Milk Price Manual
calculation is now 40 cents lower at $8.95.
When Fonterra made its last forecast in February, it was 70
cents per kg below the then Milk Price Manual calculation.
"After seeing recent improved stream returns on powders and
other products, and considering the level of risk likely in
the remaining three months of the financial year, the board
has decided to reduce that 70 cent gap by 15 cents, to 55
cents," Wilson said.
Spierings said market volatility remained an issue, as did
impact of the still strong New Zealand dollar.
GlobalDairyTrade (GDT) prices have tracked down in recent
events, with the GDT price index down more than 22 per cent
since a peak on February 4, 2014.
Since that date, prices for whole milk powder on GDT have
decreased by 22 per cent, while skim milk powder prices are
down 23 per cent.
Despite the weaker auction results, the New Zealand dollar
has remained firm, Spierings said.
- Jamie Gray, APNZ business reporter