Fonterra slashes milk price forecast to account for supply demand 'imbalance'

By Mark ASTLEY contact

- Last updated on GMT

Fonterra slashes milk price forecast to account for supply demand 'imbalance'

Related tags: Supply and demand, Milk

Fonterra has slashed its farm gate milk price (FGMP) forecast for the 2015/16 to account for the current "imbalance" in supply and demand.

Earlier today, Fonterra - the world's largest dairy exporter - announced it has reduced its FGMP forecast for the season to NZ$3.85 per kilogram of milk solids (kgMS).

In May, it announced an opening FGMP forecast of NZ$5.25 per kgMS for 2015/16, which began June 1.

With a dividend range of NZ$0.40 to NZ$0.50 per share, Fonterra's 2015/16 forecast cash payout stands at between NZ$4.25 and NZ$4.35.

The New Zealand dairy also reduced its milk volume forecast to 1.569bn kgMS for the season - down 2% on 2014/15 season 

Supply and demand "imbalance"

John Wilson, chairman, Fonterra, attributed today's FGMP forecast reduction to the current supply and demand "imbalance."

"The imbalance and the challenge of lower prices continuing for longer than anticipated is a global issue, which dairy farmers around the world are increasingly grappling with," ​said Wilson.

"Current prices are unsustainably low and we are seeing them beginning to impact production levels globally. We have confidence that prices will recover over the course of the season. However, it will be a tough season for our farmers,"​ he added.

To help its farmer owners "deal with the challenging conditions"​ Fonterra is offering what it calls Fonterra Cooperative Support.

The loan - NZ$0.50 per shared up milk solids - is interest-free for two years and will be paid back when the FGMP or Advance Rate goes above NZ$6.00 per kgMS.

For the first half of the season - June to December - Fonterra Cooperative Support is estimated to total NZ$430m depending on uptake.

"The support is all about standing together as a Cooperative and using our collective strength to help our farmers get through these tough times,"​ said Wilson.

Global Dairy Trade

Yesterday, Fonterra dismissed calls for the Global Dairy Trade (GDT) auction platform, which was established by the New Zealand dairy in 2008, to be suspended after a tenth consecutive fall in prices.

The GDT Price Index - a weighted average of the percentage changes in prices - fell 9.3% after Wednesday's bi-monthly auction - the tenth consecutive decrease.

In a series of tweets, Kelvin Wickham, managing director of global ingredients, Fonterra, said suspending GDT would not "solve the supply demand imbalance."

Related topics: Business, Oceania, Industry growth, Dairy

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