Fonterra Cooperative Group, the world’s biggest dairy exporter, forecast a recovery in milk prices even as it cut its estimated payout to New Zealand farmers for the current season.
Fonterra Thursday lowered its 2014-15 payout by 10 cents to NZ$4.40 ($3.20) a kilogram of milk solids, and forecast a farm gate milk price of NZ$5.25 a kilogram for the season ending May 2016. ASB Bank economists had predicted an opening Fonterra forecast for 2015-16 of around NZ$5.
“We can expect prices to recover going forward, and to see a rebalancing of supply and demand over the season,” Chairman John Wilson said in a statement. “However it is more difficult this early in the season to determine exactly when this recovery will lead to a sustained price improvement.”
Dairy prices have slumped to a five-year low amid a global glut, hurting New Zealand farmer incomes and threatening to curb the nation’s economic growth. Fonterra’s farmer payment has dropped from a record NZ$8.40 a kilogram last season.
“World markets are over-supplied with dairy commodities after farmers globally increased production in response to the very good prices paid 12-18 months ago,” Wilson said. “This supply imbalance has heightened due to continuing good growing conditions in most dairy producing regions.”
Chief Executive Theo Spierings said the long-term fundamentals of global dairy demand are strong.
“Our forecast for the new season takes into account a range of factors including global milk production forecasts, the economic outlook of major dairy importers, current inventory levels and geopolitical events,” he said in the statement.
Bloomberg News, edited by ESM
