Milk powder prices behind Fonterra farmgate price drop

Fonterra says weaker than expected international prices for milk powder is the main reason behind a drop in its predicted farmgate price.

The dairy co-op has narrowed its 2018/19 forecast Farmgate Milk Price range from $6.30 - $6.60 per kgMS range by 20 cents to $6.30 - $6.40per kgMS.

It said it reflected the favourable foreign exchange movements but slightly weaker than expected pricing for whole milk powder and skim milk powder.

The co-op has now contracted the majority of its farmers' milk for the current season and said it had greater certainty on the likely closing Farmgate Milk Price, which was also reflected in the tighter forecast range.

Fonterra announced a forecast 2019/20 Farmgate Milk Price range of $6.25 - $7.25 per kgMS.

Chairman John Monaghan said it was a realistic opening forecast.

"We are having to look out more than a year into the future which is difficult, but what the information available is continuing to show us is that demand remains strong across key trading partners and this is reflected in GDT prices," he said.

"We are giving farmers a wide range for the opening forecast milk price. It will be narrowed as the season goes on," said Monaghan.

The 2019/20 Advance Rate Schedule has been set off $6.75 per kgMS.

"Weather plays a significant role in determining global milk volumes, and therefore price. We are forecasting our New Zealand collections to be 1,520 million kgMS for the new season, which is up slightly on the current season."

In the Q3 financial announcement on Thursday, Fonterra reported an increased revenue of $15 billion for the nine months to April 2019.

The figure is up one percent on the same period last year, while sales volumes were 16.6 billion liquid milk equivalent (LME), up 4 percent.

However, EBIT was down 9 percent to $522 million.

It has also revised its earnings guidance range from 15-25 cents per share to 10-15 cents per share.