Fonterra braces farmers for slide in milk prices

Fonterra underlined the retreat in dairy markets by forecasting a 17% drop the price it pays farmers for milk next season, citing a "rebalancing" which has reduced the squeeze on supplies.

The New Zealand-based co-operative, the world's biggest dairy exporter, trimmed by NZ$0.25 per kilogramme of milk solids to NZ$8.40 per kilogramme of milk solids its estimate for the price it will pay its farmer members for milk in 2013-14, which ends this month.

And it forecast a drop in prices to NZ$7.00 per kilogramme of milk solids 2014-15, noting a retreat in the market squeeze which drove this season's payout to a level which still represents a record high.

'More milk available'

"Dairy commodity prices have come off the peak reached in early February this year, as global supply and demand have rebalanced," said Theo Spierings, the Fonterra chief executive.

Although demand from China, the top importer, was expected to "remain strong", the Russian market will see "pressure" on the popularity of imports, compared with domestic supplies.

Meanwhile, "there is currently more milk available for the international market to absorb", Mr Spierings said, with exporters including the European Union raising production, besides New Zealand itself.

Fonterra forecast a rise of 2.0% to 1.62m kilogrammes of milk solids in its milk supplies next season, a record high, but far slower than growth recorded this season, in which producers enjoyed ideal weather for much of the time, and comparison with a drought-affected 2012-13.

'Fall in dairy commodity prices'

The estimate for the 2014-15 milk price was even lower than many commentators expected, although it remains high by historical standards, and well above the NZ$5.80 per kilogramme of milk solids farmers received last season.

The co-operative said that it was taking into account the "recent fall in global dairy commodity prices", which have fallen by more than 20% in three months at the GlobalDairyTrade auctions its runs.

Nonetheless, it would represent Fonterra's fourth highest payout ever and, according to Australia & New Zealand bank, would still leave farmers in a prosperous situation.

Average farm profitability will come in at nearly NZ$3,500 per hectare next season, well above the average of NZ$1,250 per hectare, ANZ said.

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