Milk price hold welcomed

Fonterra's decision to hold its forecast farm-gate milk price for the 2014-15 season at $6 reflects the longer-term outlook for international dairy prices, chairman John Wilson says.

Last month, the co-operative slashed its forecast from $7 to $6, following continued falls in prices which had been affected by strong global production, softer demand and inventory build-up in China.

With a previously announced estimated dividend range of 20c-25c per share, that meant a forecast cash payout for the season of $6.20-$6.25.

Current market views, supported by Fonterra's own forecasting, indicated commodity prices improving later this year or in early 2015 and global demand continuing to grow year-on-year, Mr Wilson said.

While the long-term market fundamentals remained sound, the current market conditions were difficult and there remained further down-side risk.

''There is still volatility. This reflects challenges with supply and demand following a good dairy season globally. Given these factors, the forecast is our best judgement at this time,'' he said.

It was early in the season and it was important farmers continued exercising caution over their farming business budgets.

Fonterra Shareholders Council chairman Ian Brown said farmers would be relieved with the announcement but stressed the importance of continued prudent financial planning.

Westpac senior economist Anne Boniface said the bank was maintaining its own forecast of a $5.80 milk price, which effectively incorporated some of the down-side risk alluded to by Fonterra.

Federated Farmers dairy chairman Andrew Hoggard said the milk price hold was good news, given there had been widespread speculation about it sliding below the $6 mark.

However, they were ''not out of the woods yet'' and farmers should budget in the mid-$5 payout range, he said.

An update on business performance would be provided when Fonterra announced its annual result on September 24.

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