Milk Glut Drags Fonterra Forecast Down to $9.20/kgMS
A milk glut around the world shows no sign of easing, putting downward pressure on farmgate milk prices for the next few months.
This morning the co-op dropped its milk payout for the season by 10c to $4.40/kgMS; with its previously announced forecast dividend range of 20-30 cents per share, the change amounts to a forecast cash payout of $4.60 - $4.70/kgMS for a fully shared-up farmer.
However, there was a silver lining to the announcement; the co-op has announced an opening forecast for the 2015-16 season, which starts June 1, of $5.25/kgMS; this does not include the forecast dividend payout which will be announced later.
Fonterra chairman John Wilson says the revised 2014-15 forecast reflected the reality that global commodity prices had not increased as expected.
"World markets are over-supplied with dairy commodities after farmers globally increased production in response to the very good prices paid 12-18 months ago. This supply imbalance has heightened due to continuing good growing conditions in most dairy producing regions.
"This is a tough season and we will continue to keep our farmers informed as the season draws to a close given the current volatility," says Wilson.
Wilson says the opening forecast milk price was based on Fonterra's best view of long-term global dairy supply and demand.
"We can expect prices to recover going forward, and to see a rebalancing of supply and demand over the season. However it is more difficult this early in the season to determine exactly when this recovery will lead to a sustained price improvement," says Wilson.
Chief executive Theo Spierings says the long-term fundamentals of global dairy demand are strong.
"Our forecast for the new season takes into account a range of factors including global milk production forecasts, the economic outlook of major dairy importers, current inventory levels and geopolitical events," says Spierings.
"Given the season we are coming out of, we are absolutely focused on improving farmer returns and driving the cooperative's performance," says Spierings.
The Advance Rate will begin at 70% of the forecast farmgate milk price, with an opening rate of $3.66/kgMS.
