Fonterra’s likelihood of reaching forecast milk payout lifts

rising-tide-of-milk

Fonterra Cooperative Group’s chances of reaching its forecast farmgate milk price for this season have lifted after whole milk powder prices improved at the latest Global Dairy Trade auction this week, AgriHQ said.

The price of whole milk powder rose 4.2 percent to US$2,886 a tonne at the latest GDT after Fonterra said it expects its New Zealand milk collection for the current 2017/18 season to be 3 percent below last season as dry weather stunts grass growth and lowers milk production. Fonterra also warned it was reducing the amount of whole milk powder it offered on the auction platform. It had previously expected its local milk collection this season to be in line with the prior season.

That prompted AgriHQ to increase its milk price forecast for the current season by one cent to $6.10 per kilogram of milk solids, the first time it has moved higher since October but still lagging behind Fonterra’s forecast of $6.40/kgMS.

“The likelihood of reaching this forecast has now improved given that WMP prices are tracking higher again,” said AgriHQ analyst Susan Kilsby. “The lift in the WMP price has primarily been driven by tightening supply. WMP production for the remainder of the season will be negatively impacted by the lower milk intakes. Milk production is being curbed as pasture growth is restricted due to very dry soils in many dairying regions.”

Fonterra, New Zealand’s dominant milk processor and the world’s largest dairy exporter, expects to collect 1,480 million kilograms of milk solids in New Zealand this season, down 3 percent from the 1,525 million kgMS it collected in the 2016/17 season.

The cooperative said wet conditions experienced by farmers at the beginning of spring improved from late October and into November, but the recent dry weather is continuing to impact soil moisture and pasture quality right across the country. Dry conditions are expected to continue, and even if the rain forecast for early in 2018 eventuates, it will not be enough to bring production back to previously anticipated levels, it said.

AgriHQ’s Kilsby noted that higher returns from other product mixes such as anhydrous milkfat and skim milk powder would also limit the milk available for whole milk powder production.

New Zealand supplies more than half the whole milk powder traded around the world, so changes in local production had a big impact on the global market, Kilsby has said.

On the other side of the ledger, demand for whole milk powder remained steady with China, the largest buyer, continuing to use imported product to make up the shortfall in its own domestic milk production, she said.

Units in the Fonterra Shareholders Fund, which gives investors exposure to Fonterra’s earnings, last traded at $6.38, having gained 5.5 percent over the past year.

 

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