Fonterra shaves 50c off forecast milk price
Fonterra has dropped its forecast milk price mid-point by 50c as a surge in global milk production is putting downward pressure on commodity prices.
Rabobank is picking a fall of 8%, ASB forecasts 5% and BNZ picks 4%.
ASB rural economist Nathan Penny says the market has been focused on Fonterra's reduction in volumes on the GDT but will soon turn its focus on production and this is looking particularly weak.
"We've now factored in a 5% fall in production. Historically, that [would be] the largest fall since 1999... On that basis we would expect prices to continue to rise," Penny says.
Aggressive cow culling by farmers is evidence "both in numbers and what we are hearing around the traps".
"If you look at cow slaughter, the data is running well ahead of last year. With US beef exports we are going to breach the quota for the first time since 2004, I believe, and that is largely down to the dairy cow cull.
"Farmers are likely to cull more once they get through calving and peak milk production so they are continuing to think along the lines of reducing their herd size."
And spring has been poor, particularly down south, he says.
"In Southland they are struggling with temperatures and grass growth. The other factor is farmers using supplementary feed sparingly. So adding those things up, they are all effectively bowing to production being pretty weak. El Nino is another risk that hasn't been factored in."
Rabobank's Emma Higgins says supply could fall more – maybe up to 8% - as farmers cull, cut back the use of supplementary feed and take other measures to reduce costs.
