Fonterra announces big cut to forecast dairy payout

Fonterra announces big cut to forecast dairy payout

Fonterra has cut its forecast Farmgate Milk Price, saying the global economic conditions for the dairy market are still challenging.

The cooperative reduced its expected payout for the 2015/2016 season from $4.60 per kg of milk solids (kgMS) to $4.15kgMS. It says the total available payout to farmers, including earnings per share of 45 - 55 cents, would be between $4.50 and $4.55 per kgMS.

Fonterra's chairman John Wilson says global economic conditions are hurting a range of commodities, including dairy.

"Key factors driving dairy demand are declining international oil prices which have weakened the spending power of countries reliant on oil revenues, economic uncertainty in developing economies and a slow recovery of dairy imports into China. In addition, the Russian ban on European Union dairy imports continues to push more product on to the world market," he says in a media release.

He says that while New Zealand farmers have reduced their milk supply, that has not yet happened in other regions -- including Europe -- where milk production is still increasing.

This morning the Reserve Bank announced it was keeping the Official Cash Rate on hold at 2.5 percent, saying there are still a lot of economic concerns around the world, including weak commodities markets.

"There are many risks around the outlook," Reserve Bank Governor Graeme Wheeler says in a statement. "These relate to the prospects for global growth, particularly around China, global financial market conditions, dairy prices, net immigration, and pressures in the housing market." 

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