Tuesday, 13 December 2016 10:55

Global milk supply dips, demand firm

Written by  Sudesh Kissun
Fonterra managing director Theo Spierings with farmer Gerard van Beek. Fonterra managing director Theo Spierings with farmer Gerard van Beek.

The global supply/demand is beginning to rebalance, says Fonterra chairman John Wilson.

It is driven mainly by farmers responding to lower milk prices and cutting back production; major suppliers Europe and Australia are producing less milk. And the wetter spring in New Zealand has seen milk production fall 5.7% from levels last year.

Speaking to Fonterra shareholders at its annual meeting last week, Wilson said demand is growing at an average of 2% in key markets. Demand for dairy in China is growing, however it remains patchy in oil producing countries reeling under low oil prices.

In November Fonterra revised its forecast payout – a 75c increase in milk price to $6/kgMS and a dividend payout of 50c-60c. The revision reflects the rebalancing of demand and supply, Wilson says, and though the co-op expects returns to remain volatile it is maintaining its 50-60c range dividend.

Wilson says despite the rise in forecast payout, Fonterra is aware of the poor start to the season.

“For many businesses a lot of catch-up is required given the two poor seasons many have endured.”

The latest Global Dairy Trade (GDT) saw the average price rise 3.5% to $US3622 a tonne. This follows a 4.5% rise at the previous auction and is the fourth consecutive positive result.

The important whole milk powder price has risen 4.9% to $US3593 a tonne, comfortably in the break-even range for farmers who budget on about $US3000 a tonne to cover their cost of production.

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