Fonterra slashes forecast NZ farmgate price

03 Sep, 2018 04:00 AM
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Fonterra chairman John Monaghan says increased milk supply has forced a drop in the farmgate milk price. Picture: Chris McKeen/Stuff
The change was in response to stronger milk supply signals coming from the world's key dairy markets
Fonterra chairman John Monaghan says increased milk supply has forced a drop in the farmgate milk price. Picture: Chris McKeen/Stuff

Fonterra has cut its forecast New Zealand farmgate milk price from $NZ7 per kilogram of milksolids $NZ6.75 per kilogram milk solids for the year to September 2019.

Fonterra chairman John Monaghan said the change was in response to stronger milk supply signals coming from some of the world's key dairy producing regions.

The move was not unexpected, with many analysts predicting a fall. The $7 price has been under threat after a 9 per cent fall in global dairy auction (GDT) prices in recent months.

Mr Monaghan said in the past quarter, Europe, the United States and Argentina had all increased milk supply.

"These regions have a big influence on the supply and demand balance and therefore global prices," he said.

"For example, the one per cent increase in US milk production represents just under 1 billion litres of extra milk.

"At the same time, demand for whole milk powder and dairy fats is showing signs of slowing in some parts of Asia, Africa and the Middle East."

NZ Federated Farmers dairy chairman Chris Lewis said he had recently cautioned about processors overpromising and under delivering.

"Farmers and bankers rely on this information when setting their budgets," he said.

"No one wants to downgrade, the new chairman and CEO would not have wanted to deliver this news."

Nevertheless, farmers had not put much milk in their vats yet, with many still calving.

The price of $6.75 was still high historically, and milk supply in the northern hemisphere might fall away later this year because of drought and higher grain prices.

Fonterra interim chief executive, Miles Hurrell, said the weakening New Zealand dollar against the US dollar had only partially offset the decline in global dairy prices. It was important to give farmers a realistic assessment of the market.

"It's still very early in the season and a lot can change over the coming months," Mr Hurrell said.

"A drop in the new season milk price forecast will be frustrating to our farmers, but it's important we give them the facts so they can make informed decisions in their farming businesses."

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