Economist suggests Fonterra forecast 'top heavy'

A rural economist has suggested Fonterra is being optimistic in its revised milk price forecast.

The co-operative has trimmed its 2018/19 milk price forecast range to $6.00-6.30/kg range from $6.25-$6.50/kg.

It said the revision was due to a strong supply of global milk, which has driven global prices down.

ASB Senior Rural Economist, Nathan Penny said the revision came as no surprise as dairy prices have dipped since Fonterra's last update back in October.

Moreover, the New Zealand dollar has strengthened as well, adding to the downward pressure on the milk price forecast.

Nathan Penny suggests the milk payout price will be on the low side.
Nathan Penny suggests the milk payout price will be on the low side. Photo credit: Newshub

However he thinks Fonterra's updated forecast is optimistic. 

"We anticipate more (NZ) production strength than Fonterra appears to have factored into its forecast - and as a result, we don't expect dairy prices to lift over coming months as Fonterra does," he said.

"With the above in mind, we note the risks to Fonterra's forecast are clearly tilted to the downside, as indicated by our forecast of $6.00/kg.

"Using the midpoints of the Fonterra's forecast range, the revision equates to a net income reduction for the industry of over $400 million.

"For an average farm, that equates to nearly $34,000."


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