A farmgate milk price at the upper end of Fonterra’s forecast is now on the cards.
Demand is expected to increase by 2-3% a year due to the growing world population, increasing middle classes in Asia, urbanisation and favourable demographics.
"In addition to global supply growth slowing, we are seeing imports into major dairy markets improving compared to a year ago," he says
"China dairy consumption growth remains positive and its demand for imports has been steady over recent GlobalDairyTrade events.
"We expect these drivers to result in the globally traded market rebalancing.
"We will remain focused on securing the best possible returns for our farmers by converting their milk into high-value products for customers around the world."
There is no change to the current 2015/16 season forecast farmgate milk price, which is being held at $3.90/kgMS.
Tough number to hear
It's a tough number for farmers to hear but it's the reality of where the market is at present, says Shareholders Council chairman Duncan Coull.
"The signal farmers have received from their board is that while there are encouraging signs and the market should move in a positive direction over the next 12 months, it will be slow to do so.
"However, we farmers are well tuned to volatility... and will have this front of mind as we work through our budgets for the coming year."
Coull says the $4.25/kgMS is a forecast for a season not even begun.
"So, as we move through the year it is vital that farmers continue to read the signals being delivered by the market and our co-op, and act appropriately.
"Fundamental to this is Fonterra communicating any significant pricing shifts to our farmers in a timely and transparent manner."
Coull also acknowledged that the opening advance rate of $3.0/kgMS indicated the strength of the co-op's balance sheet.
"Farmers can look to this as an indication that their business is in a strong position, and that their board is aware of the current situation onfarm and has a desire to relieve cashflow pressure where possible.
"However, the current environment is placing additional stress on us all, so [we must] continue to stay engaged in our communities and support our friends and neighbours."