Positive cash flows are unlikely to return to beleaguered dairy farmers until early 2018, economists say.
Fonterra has kept its forecast farm-gate milk price unchanged at $4.25 and announced a forecast earnings per share range for the 2017 financial year of 50c-60c, bringing the total payout available to farmers in the 2016-17 season to $4.75-$4.85.
The "solid'' forecast earnings per share range reflected performance improvements across the business and would be welcomed by farmers, but with the unchanged milk price forecast, it would be another financially challenging season for them, chairman John Wilson said.
The co-operative was aware of how tough the situation on farms remained and it was focused on delivering as much cash as possible to farmers by bringing payments forward while maintaining a strong balance sheet, he said in a statement.
The milk price reflected the ongoing global uncertainty and the high NZD/USD exchange rate which continued to affect the competitiveness of New Zealand dairy exports.
The recent weakening of the euro, combined with the continued strength of the New Zealand dollar, had meant a price advantage for European export dairy products, Mr Wilson said.
Global milk supply and demand was expected to come into balance over the course of this season.
Farmers globally were producing less milk in response to lower prices and Fonterra was forecasting a 3% reduction in its New Zealand milk collection for this season, he said.
Chief executive Theo Spierings said the returns from the ingredients, consumer and food service businesses continued to grow in line with Fonterra's business strategy to convert more milk into higher returning products.
While there was still "plenty of water to flow under the bridge'' the current milk price was only around $3.90, so some decline in the dollar and improvement in international prices was required to achieve that forecast, ANZ agri economist Con Williams said.
ANZ continued to hold a mid-to-high-$4 forecast for 2016-17 but international prices would need to break outside current ranges later this year to achieve it.
Supply side dynamics remained key and there were some encouraging signs, Mr Williams said.
Southern hemisphere supply was down across all the main exporters with more tightening to come over the next 12 months.
European milk supply growth was slowing more sharply in some of the main producing regions, such as the United Kingdom, Germany and France, and policymakers were beginning to more actively target supply to improve prices.
The United States continued to produce more but most of the excess was being soaked up by domestic demand. ANZ did not see positive cash flow for the sector returning until early 2018.
ASB rural economist Nathan Penny said it was still early days in the season and there was plenty of time for prices to rise.
The bank expected weak production to translate into lifting prices earlier in the season.
Locally, weak production continued with June amounts 0.7% lower than June 2015. And, based on heavy slaughtering, ASB expected a 5% decline for the season as a whole.
A back-to-back fall in New Zealand herd numbers was "unprecedented'', Mr Penny said.
Fonterra's upgraded earnings forecast, which compared with a 2015-16 estimated range of 45c-55c, was a positive sign that some of the changes Fonterra had made to its business were "starting to bear fruit'', he said.
Westpac senior economist Anne Boniface said futures contracts were pointing to a lift in prices in this week's GlobalDairyTrade auction.
