Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
The co-operative now expects to collect 1,500 million kgMS from farmer suppliers, down from its opening forecast of 1,525 million kgMS.
ASB economist Nat Keall says Fonterra's decision isn't too surprising given that production has struggled to build momentum this season and the weather has been mixed.
"So, to some degree concerns around lower supply will already be priced-in," Keall told Dairy News.
Keall says the news is further confirmation prices can be expected to remain well supported over the remainder of this season and the beginning of the next one.
"With dairy production in the US and EU also looking soft, global supply is set to remain tight for some time to come," he says.
Fonterra chief executive Miles Hurrell says varied weather and challenging growing conditions across many parts of the country earlier in the season saw actual milk collections down on the same time last year.
"We were expecting conditions to improve over the Christmas-New Year period, but this has not eventuated."
In response to the lower milk supply, Hurrell says at this stage no change is needed to the volume of product the co-op is offering on the Global Dairy Trade (GDT) platform.
"Due to the high demand for off-GDT sales, we had already reduced the volume we were offering on the GDT platform earlier in the season.
"We will continue to monitor the situation and carefully manage our sales both on and off-GDT."
