Fonterra opening forecast $7

It also shaved 25c off the current farmgate milk price for the 2013/14 season to $8.40/kgMS with a forecast dividend of 10c. This amounts to a forecast cash payout of $8.50/kgMS for a fully share-up farmers.

To protect the cooperative's profitability, the board has used its discretion to pay a lower rate this season than in than calculated under the milk price manual. However the gap between that calculation and the forecast farmgate milk price has been reduced from 70c in the previous forecast announcement to 55c.

Fonterra says the opening forecast farmgate milk price of $7/ kgMS for the 2014/15 season matches the opening forecast provided 12 months ago at the 2013/14 season start.

The forecast cash payout which includes the dividend for the 2014/15 season will be announced in July when Fonterra's budget is completed and approved.

The cooperative is forecasting milk supply for the new season of 1,616 million kgMS – up 2% on the current season forecast of 1,584 million kgMS.

Chairman John Wilson says the new season farmgate milk price forecast remains historically high, matching the cooperative's opening price of the previous season, but also reflects 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 says.

Chief executive Theo Spierings says 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," says Spierings.

"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."

The cooperative also confirmed it is reducing its current forecast farmgate milk price for the 2013/14 season to $8.40/kgMS. With a forecast dividend of 10 cents per share, the change amounts to a forecast cash payout of $8.50 for a fully shared-up farmer.

Chairman John Wilson says 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 40c lower at $8.95.

"When we announced the last forecast farmgate milk price, it was 70c per kgMS below the then milk price manual calculation. We made that decision to protect the cooperative.

"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 70c cent gap by 15c, to 55c.

"That is why today's forecast farmgate milk price amounts to a 25 cent net reduction from $8.65 to $8.40," he says.

Chief executive Theo Spierings says volatility remains an issue. The revised forecast reflects the recent fall in global dairy commodity prices, as well as the impact of currency movements.

"Our previous guidance on the earnings range remains unchanged.

"GlobalDairyTrade (GDT) prices have tracked down in recent events, with the GDT price index down more than 22% since a peak on February 4, 2014. Since that date, prices for whole milk powder on GDT have decreased by 22%, while skim milk powder prices are down 23%.

"Despite the weaker auction results, the New Zealand dollar has remained firm. The exchange rate has moved from NZD/USD 0.835 to sit above NZD/USD 0.855 for the majority of the last two months," says Spierings.

The forecast farmgate milk price change for the current season will not mean any revision to the June payment of the advance rate schedule. The 25c net reduction will be spread over the July to October payments.