Strong production, tested demand send milk prices crashing
Strong global milk production and rebalancing of demand among key buyers has delivered one of the biggest drops in whole milk powder prices in recent years.
Fonterra is required to consider its Farmgate Milk Price every quarter as a condition of the Dairy Industry Restructuring Act (DIRA).
The cooperative confirmed today a forecast Farmgate Milk Price for the 2012/13 season of $5.50 per kilogram of milksolids, unchanged from the previous forecast. Fonterra's forecast Earnings Per Share range remains at 40-50 cents.
Fonterra Chief Executive Theo Spierings said dry weather conditions, particularly in the North Island, in mid-December and January had resulted in a slowdown in milk supply growth.
"We had a strong start to the season and milk collection volumes were running 6% ahead of last season on a year-to-date basis," says Spierings. "However, the dry conditions mean we are currently forecasting total milk collection volumes to finish approximately 1% ahead for the full season."
Global dairy prices remained relatively flat through December and January, with the GDT-TWI increasing by 2% over this period. The index has since gained 5% in February. Given current global conditions, our Farmgate Milk Price forecast anticipates global dairy prices are likely to move higher in the second half of the season.
The current Farmgate Milk Price forecast of $5.50 kgMS is based on no substantial change to the current exchange rate for the rest of the season. If there was a further significant strengthening of the New Zealand dollar against the USD then this may adversely impact on the forecast Farmgate Milk Price.
