FONTERRA has dropped its forecast NZ farmgate milk price today, citing stronger global supply compared to demand.
The co-operative dropped the forecast price from $NZ6.75 ($A6.15/kgMS) a kilogram of milk solids to $6.25-$6.50/kgMS ($5.92-$A5.70/kgMS)
Fonterra also increased its forecast milk collection volumes by 1.3 per cent to 1,550 million kilograms of milk solids.
Fonterra chief executive Miles Hurrell said the price change was a reaction to global market supply and demand.
“I know how hard it is for farmers when the forecast farmgate milk price drops, but it’s important they have the most up to date picture so they can make the best decisions for their farming business,” he said.
“We are still seeing strong production coming from Europe, US and Argentina. While the hot weather in Europe has slowed down the region’s production growth, it is still tracking ahead of last year. US milk production is up slightly and Argentina’s is up 6.8 per cent.
“Here in New Zealand, the season has got off to a positive start, mainly thanks to good weather and early calving in the South Island. As a result, we have increased our forecast milk collections for the year to 1,550 million kgMS — up from 1,525 million kgMS.”
Mr Hurrell said global demand was not matching current increases in supply.
“At recent Global Dairy Trade events, prices for all products that make up the milk price have fallen. Demand for WMP, in particular, continues to grow in China, and it remains strong across South East Asia, but it simply isn’t matching current levels of supply,” he said.
Mr Hurrell said farmers should budget with “ongoing caution” as it was only early in the season. Fonterra said it was a “new move” to provide a range for a forecast farmgate milk price and Mr Hurrell said it was part of the co-operatives intention to provide the best possible signals.
“We operate in a hugely volatile global marketplace, so it is very difficult to pinpoint an exact forecast Farmgate Milk Price this early in the season,” he said. “For example, weather conditions can change suddenly and this can have a significant impact on the global milk supply.”
Although Fonterra has provided a range, it said its advance rate (payment schedule rate) was based on $6.25/kgMS ($A5.70/kgMS) and warned the “final price could be outside this range as we are still early in the season and up against considerable volatility”.
NZ bank ASB has warned of potential price revisions from Fonterra NZ and it said in a statement this morning that Fonterra’s previous forecasts for this season “had looked on the high side, and a downward revision was anticipated”.
“The forecast range is now set at a more realistic level,” it said. “Furthermore, the shift to using a range rather than a point estimate is an acknowledgement of the uncertainties to the outlook. Higher global milk production was the key reason for the forecast cut.”
ASB has predicted a $6.50/kgMS ($A5.92/kgMS) milk price for NZ this season but it said this forecast “continues to carry risk of being trimmed”.
Last week the online auction Global Dairy Trade dipped 1.9 per cent to $US2901 a tonne, the fourth consecutive price decline.