September 6, 2018

Fonterra lowers 2018-19 farmgate milk price forecast due to higher supply

The Fonterra Co-operative Group Ltd last Friday, Aug. 31, revised its 2018-19 forecast of farmgate milk price from NZ$7 (US$4.61) per kilogramme of milk solids (kgMS) to $6.75 (US$4.45) per kgMS.

Fonterra Chairman John Monaghan said the change was in response to stronger milk supply signals coming from some of the world's key dairy producing regions.

"Over the past quarter, we have seen increased milk supply out of markets including Europe, the US and Argentina. These regions have a big influence on the supply and demand balance and therefore global prices. For example, the one percent increase in US milk production represents just under 1 billion litres of extra milk", he said.

"At the same time", he added, "demand for whole milk powder and dairy fats is showing signs of slowing in some parts of Asia, Africa and the Middle East".

Fonterra CEO Miles Hurrell said the weakening New Zealand dollar-US dollar exchange rate had only partially offset the decline in global dairy prices, and that it was important to give farmers a realistic assessment of the market.

"A drop in the new season milk price forecast will be frustrating to our farmers, but it's important we give them the facts so they can make informed decisions in their farming businesses". 

Last week's forecast update is in line with requirements of the Dairy Industry Restructuring Act for Fonterra to review the milk price every three months. The co-operative last considered the milk price in May.