Improved milk price forecast good news for farmers

Fonterra has bumped up its 2019-20 forecast farm-gate milk price range from $6.25-$7.25 to $6.55-$7.55 - welcome news for its farmer shareholders.

In a statement, chairman John Monaghan said Fonterra had been achieving good prices for its milk so far this season.

''Demand for whole milk powder has been firm and, for the full season, we're expecting it to be above last year.

''Global WMP production is down year to date and expected to continue to decrease for the remainder of 2019. We're also continuing to sell our skim milk powder at higher prices than EU and US dairy companies in GlobalDairyTrade events.''

Chief executive Miles Hurrell said there were positive signals for milk price, although he cautioned it was still very early in the season and a lot could change.

''There are a number of factors we are keeping a close eye on, which is why we've retained a wide forecast milk price range.

''These factors include global trade tensions and political instability in some of our key sales regions.

''And, as is always the case, we cannot predict the weather and, clearly, weather conditions play a big role in global supply,'' he said.

The advance rate Fonterra paid would be set at the midpoint - $7.05 - of the revised range.

That midpoint meant another $450million into regional New Zealand, Mr Hurrell said.

Last month, the co-operative unveiled its new strategy as it posted a net loss attributable to shareholders of $557million in the 12 months ended July 31, widening from its maiden loss of $221million a year earlier.

The new strategy puts greater emphasis on extracting value rather than pursuing volume. The strategy also brings the focus squarely back to New Zealand.

Mr Hurrell said Fonterra's earnings outlook for FY20 was based on a forecast farm-gate milk price which still fell within its new forecast range.

''The midpoint of the revised range does mean our teams will need to continue to push hard to achieve our margins, but so far we're comfortable with how this season is shaping up, in terms of underlying business performance.

In BNZ's latest Rural Wrap, economist Doug Steel said global dairy prices had stabilised over recent months, even showing a hint of increase.

The United States-China trade tension had been a poor backdrop but dairy demand had been firm and generally subdued global milk supply continued to offer fundamental support.

Resilience of global dairy prices to offshore uncertainties to date, coupled with a lower kiwi, meant BNZ had revised its 2019-20 milk price forecast from $6.70 to $7.10.

Risks around the bank's new forecast appeared evenly balanced, Mr Steel said.

-Additional reporting by BusinessDesk

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