Eyes focused on Friday milk price forecast

Attention turns to Fonterra this week. Photo by Stephen Jaquiery.
Attention turns to Fonterra this week. Photo by Stephen Jaquiery.
All eyes will be on Fonterra on Friday afternoon when the dairy giant is expected to announce its latest milk price forecast.

The board meeting is scheduled to break at 2pm, with an announcement predicted to be released by mid afternoon. There is no doubt the co operative will downgrade its 2015 16 forecast from $5.25, with ASB predicting it will slash $1 off it, to the vicinity of $4.25.

Since Fonterra's opening forecast on May 28, overall dairy prices have fallen more than 20%, while key whole milk powder prices have fallen 25%.

Both Westland Milk Products and Open Country Dairy, the next biggest dairy companies, have reduced their forecasts by about $1 each.

The risks were that Fonterra would go further than $4.25, with an informal market median sitting below $4, ASB rural economist Nathan Penny said.

Foreign exchange hedging might mean that the co operative had not been able to capture all of the recent, rapid falls in the New Zealand dollar.

But by season end, Mr Penny was expecting $4.50, based on the bank's view that July's price falls were likely to be temporary.

Over the past month or so, global dairy supply and demand had not changed materially. All new information related largely to the Chinese sharemarket and, to a lesser degree, Greek concerns, Mr Penny said.

Moves by Fonterra to switch production away from whole milk powder into higher priced products, plus a lower production outlook, should put upward pressure on overall prices in time.

Mr Penny expected a mixed result at this week's GlobalDairyTrade auction, with downside risks.

Fonterra's announcement to reduce auction volumes and change the mix of products should put upward pressure on prices in time, but that was balanced by futures pricing suggesting a whole milk powder price fall.

The latest biweekly United States Department of Agriculture world dairy price report showed prices for all ingredients, from both European and Oceania origins, were lower than in the previous report.

Prices for butter and whole skim milk powder for both European and Oceania were at their lowest level since 2009, while Oceania cheese and skim milk powders and European whey powder prices were also at levels not seen since 2009.

The price of European skim milk powder dropped to its lowest level since early 2004.


At a glance

 Friday announcement for latest milk price forecast
• Fonterra expected to slash its forecast savagely
• Demand for milk products has not changed
• GlobalDairyTrade auction will set mid week tone


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