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Fonterra revises upwards expectations for 2016-17 milk collections

Fonterra, the giant New Zealand dairy co-operative, revised up its forecast for 2016-17 milk collections, despite the recent drought.

"Overall, Fonterra's New Zealand milk collections have shown signs of improvement following unfavourable weather conditions throughout the peak months," the co-operative said.

Fonterra dominates the dairy production market in New Zealand, the world's top exporter.

Falling less than expected

Fonterra revised up its forecast for the 2016-17 season, forecasting its New Zealand collections to fall by 5% year-on-year.

This is an upward revision from Fonterra's previous forecast of a 7% decline.

In January, Fonterra's milk collections in New Zealand were down 1% year-on-year, an improvement compared to earlier in the season.

Over the season from June 1 to the end of January, collections were down 5%.

"The revision factors in drought conditions in Northland," Fonterra said.

Drought pressure

Total New Zealand milk production, including that by farmers who are not members of Fonterra, has been under pressure due to a drought.

"Total milk production for December was down 3% compared to the same month last year," Fonterra said.

Total 2016 milk output in New Zealand was down 2% year-on-year, Fonterra said.

"Adverse weather, particularly through peak months placed downward pressure on volumes."

Resilient land prices

But prices for dairy land in New Zealand are remaining resilient, despite the drought.

The Real Estate Institute of New Zealand reports that prices for dairy farms, as measured on their index, rose 5.2% in the three months to January 2017 compared to the three months to December 2016.

Prices were up 8.6% year on year, Reinz said.

Falling New Zealand output

Production in Australia and New Zealand has also been falling.

In Australia, milk production in November was down 6% year-on-year.

EU production decreased for the sixth consecutive month with November down 4% compared to the same month last year."

Production over the 12 months to November was up 1% year-on-year.

US increases exports

But production in the US is bucking a declining trend elsewhere, with production in December up 2% year on year.

Fonterra ascribed the rise in production to "favourable weather conditions and grain prices".

And the rising supply is helping the US to win market share, with US dairy exports surging 27% year-on-year in November.

"US exports continue to grow with a sixth consecutive month of positive growth," Fonterra said.

"Recent export strength out of New Zealand and the EU appears to be softening."

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