Fonterra boosts milk price forecast

Fonterra boosts milk price forecast

Fonterra has increased its forecast milk price by 50 cents. It is now forecasting a farmgate milk price of $4.75 per kilogram of milk solids.

It says that, combined with earnings of 50 to 60 cents, should take the total payout available to shareholder farmers to between $5.25 and $5.35. That is above Dairy New Zealand's estimated breakeven point this season of $5.05.

However part of the earnings of 50 to 60 cents will be held back for reinvestment in the business.

Fonterra chairman John Wilson says that current global prices are still at "unrealistically low levels", but they are starting to improve.

"Milk production is reducing in most dairying regions globally in response to low milk prices, and this is bringing the world's milk supply and demand back into balance. Milk production in the EU is now in decline and our New Zealand milk collection at this early stage is around 4 percent lower for the year to date."

The high dollar remains a problem for Fonterra.

Mr Wilson says prices have increased at the GlobalDairyTrade auctions, but the rising New Zealand dollar is offsetting some of the gains. It's sitting at 73 US cents and has gained around 7 percent this year.

Last week prices soared at Fonterra's GlobalDairyTrade auction. The GDT Price Index rose 12.7 percent to an average price of US$2,731. That followed a rise of 6.6 percent at the previous auction two weeks ago.

Whole milk powder leapt 18.9 percent to an average price of US$2,695 per metric tonne. It is New Zealand's biggest dairy export product and a big influence on the payout to farmers.

Global dairy prices have been held back this year by a glut of supply, particularly from Europe. But analysts say the supply of products like whole milk powder is easing. Production is down 10 percent in the UK.