May 23, 2012

Fonterra expects recovering milk prices in August as global dairy supplies ease.

Over 10,000 farmers saw 30 cents per slashed off their forecast milk payment for the 2011/12 season, taking it to between US$6.45 to US$6.55 a kilogrammes of milk solids.

The average Fonterra farmer supplies more than 100,000 kilogrammes of milk solids in a season.

High commodity prices have triggered a step-up in global dairy production, and this extra supply has hurt dairy prices, with auction prices tumbling by more than a fifth since Fonterra's previous forecast in April.

Its opening estimate for next season's pay-out is between US$5.95 - US$6.05 per kilogrammes, but executives predict global dairy prices will slowly pick-up in August as volumes fall and demand from Asia rises.

BNZ economist, Doug Steel, who tracks the dairy sector, says the volatility will continue for some months, with pay-out cuts for the two seasons carving US$1.3 billion from the earnings for Fonterra.

He says the outlook remains positive for farmers and Fonterra.