Fonterra has slashed its forecast milk price for New Zealand farmers for 2015/16 to $NZ3.85 a kilogram milk solids.
Chairman John Wilson said the farmgate milk price forecast has been reduced from $NZ5.25/kg MS to $NZ3.85/kg MS due to the continued significant imbalance in the global dairy market between weak demand and surplus supply.
The cut was widely expected, following disastrous results on Fonterra’s GlobalDairyTrade auction.
The GDT price now sits at 2002 levels and has fallen almost 40% in 12 months.
Fonterra said today the forecast total payout available to farmers in the 2015/16 season would be $4.25-$4.35, comprising the farmgate milk price and forecast earnings per share of 40-50 cents.
Mr Wilson said the market imbalance was affecting dairyfarmers around the world.
“Current prices are unsustainably low and we are seeing them beginning to impact production levels globally,” he said.
“We have confidence that prices will recover over the course of the season.
“However, it will be a tough season for our farmers.
“The range of possible scenarios is contributing to the uncertainty we are seeing today.
“We know the global dairy market will improve.
“The hard thing to call at the moment is exactly when and how quickly.”
But Australian food market analyst Fresh Agenda says the supply outlook for dairy is grim.
In a blog post it said the world was awash with milk.
“Supply chains are clogged with milk powders, both in sheds of major producers in NZ, Europe and the US, and in buyer warehouses across major markets,” it said.
“The strong growth in milk output is the now biggest issue ahead of us.
“Such are the workings of the dairy supply chain that it takes time for major changes in markets to translate into product prices achieved by dairy manufacturers, and, in turn, in milk returns to farmers.”
Fonterra also announced Fonterra Co-operative Support of an additional 50 cents per shared-up kilogram of milksolids to support farmers this season.
The support is in the form of a loan to help farmers deal with the challenging conditions.
Fonterra also reduced its NZ milk volume forecast for the 2015/16 season to 1589 million kg MS, 2% lower than the previous season.
Source: The Australian Dairyfarmer