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.
With the estimated dividend range of 20-30 cents per share, this amounts to a forecast cash payout of $4.70 - $4.80 for the current season.
Chairman John Wilson says the reduction reflected the continuing and significant volatility in international dairy commodity prices caused by over-supply in the market.
“We have confidence in the long-term fundamentals of international dairy demand, however the market has not yet rebalanced and GDT prices for products that inform our farmgate milk price have fallen 23% since February,” he says.
“This reduction will impact cash flows for our farmers, who will need to continue exercising caution with on-farm budgets.
“Our farmers are already managing very tight cashflows. Although this reduction is not the news that anyone wants, it is important we keep our farmers updated given the significant market uncertainty.
“Given the reduced milk price forecast, we are also lowering the advance rate of scheduled monthly payments to our farmers.”
Chief executive Theo Spierings says geopolitical unrest in places such as Russia, the Middle East and North Africa is impacting on global dairy demand.
“Remote as they are, events such as the flow of refugees from Libya to Europe come together with factors like lower oil prices to soften dairy demand,” says Spierings.
Fonterra also announced its latest estimate of New Zealand milk production for the current season is 1,607 million kgMS. This is based on recent growth conditions on-farm and will depend on conditions for the rest of the season.
