You are using an older browser version. Please use a supported version for the best MSN experience.

Fonterra milk payout forecasts pared back

NZN 7/03/2017 Rebecca Howard

Economists have pared back their forecasts for Fonterra's milk payout to its farmer shareholders for the current season after dairy prices tumbled in the overnight GlobalDairyTrade auction.

Last month, Fonterra kept its forecast farmgate payout at $6 per kilogram of milk solids, citing the rebalancing of demand and supply.

Overnight, the GDT price index - which covers a variety of products and contract periods - slid 6.3 per cent from the previous auction two weeks ago to US$3,512, its lowest level since early November last year.

Whole milk powder, which makes up the bulk of the auction, sank 12.4 per cent to US$2,782 a tonne.

Global dairy prices have become increasingly volatile over recent years as government subsidies and schemes propping up prices have reduced, allowing prices for more products to be set by the market.

For farmers, that's meant huge swings in prices, with Fonterra paying a record $8.40 per kilogram of milk solids in the 2013/14 season but just $3.90/kgMS for the 2015/16 season, below the level required by most dairy farmers to break even.

Economists had been more optimistic about the payout for the current season after milk prices recovered from their latest slump but have since lowered their expectations.

Westpac economist Sarah Drought said the overnight decline and a weaker near-term outlook for prices led Westpac to lower its forecast to $5.90/kgMS versus a prior forecast of $6.20/kgMS.

"A few months back buyers were looking ahead to the New Zealand autumn, expecting a much tighter backdrop for supply and had been willing to pay a premium to secure product. But now, this has well and truly faded, with prices now firmly moving in the other direction," said Drought.

ASB Bank rural economist Nathan Penny said ASB revised down its forecast to $6/kgMS from $6.50/kgMS on the back of sliding dairy prices at the auction overnight.

Recent rain in most parts of the country means the improvements in production are likely to be maintained over the remainder of the season. "As a result, we expect the price softness may remain over the coming auctions," said Mr Penny.

AgriHQ dairy analyst Susan Kilsby said farmers will be disappointed with Tuesday night's result. "To see prices falling again before the market has fully recovered will be a disappointment to farmers.''

image beaconimage beaconimage beacon