Fonterra is forecasting its New Zealand milk production to be at least 4% lower than last season as New Zealand farmers respond to low prices by reducing herd size and feeding significantly less supplementary feed, which is expected to have an impact on this autumn’s production.
Chairman John Wilson said difficult conditions in the global dairy market have put further pressure on the forecast.
“This further reduction in the forecast farmgate milk price is the last thing farmers want to hear in what is proving to be a very challenging season. At times like this the business needs to do everything it can to drive every last cent back to farmers.”
Wilson said Fonterra management is focused on cost reduction and generating revenue. He pointed to recent figures that showed a continuing lift in financial performance and that “balance sheet strength will provide opportunities to support our farmers’ cash flows.”
Chief executive Theo Spierings said dairy exports and imports had been imbalanced for the past 18 months due to increased European production, and lower imports by China and Russia – the two largest importers of dairy.
Spierings said there was a positive outlook due to increasing demand because of a growing world population, an increase in middle-class demographics in Asia and urbanization.
In January, Fonterra announced it exported record volumes for the month of December 2015, with more than 300,000 MT shipped to its global markets.
“Our forecast is based on no significant changes to either supply or demand globally before the end of the year. However, a reduction in the supply available for export before then could mean prices recover earlier than currently expected,” said Spierings.
This month, Fonterra said it was looking at closing its Kaikoura cheese-making plant.