Fonterra cuts forecast payout to NZ farmers

Fonterra Cooperative Group, the world’s biggest dairy exporter, today announced that it has cut its forecast 2014 milk payout by 2.9% and forecast that the pay out to its New Zealand-based farmers for the 2015 season is to fall to $7 per kilogram of milk solids, reflecting a decline in world dairy prices and increased global supply.

The Co-operative confirmed today that it is reducing its current forecast Farmgate Milk Price for the 2013/14 season to $8.40 per kgMS from the previous estimate of $8.65/kgMS, which would have been a record.

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 for dairy. “Dairy commodity prices have come off the peak reached in early February this year, as global supply and demand have rebalanced. “There is currently more milk available for the international market to absorb. We expect 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,” said Mr Spierings.

Chairman John Wilson said the new season Farmgate Milk Price forecast remained historically high, matching the Co-operative’s opening price of the previous season, but also reflecting current market conditions. “Our farmers understand the realities of dairy commodity price cycles, and will exercise caution at this early stage in the season,” he said.

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 we announced the last forecast Farmgate Milk Price, it was 70 cents per kgMS below the then Milk Price Manual calculation. We made that decision to protect the Co-operative. “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. “That is why today’s forecast Farmgate Milk Price amounts to a 25 cent net reduction from $8.65 to $8.40,” he said.

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