Fonterra expected to meet its forecast payout as lower production boosts prices
By Tina Morrison
Nov. 4 (BusinessDesk) - Fonterra Cooperative Group, the world's largest dairy exporter, is expected to be able to meet
its forecast payout to farmers for this season even after dairy prices fell at a second consecutive auction.
Average prices fell 7.4 percent at last night's GlobalDairyTrade auction, following a 3.1 percent decline the previous
auction, which snapped four consecutive gains.
Auckland-based Fonterra, owned by about 10,500 farmers, has said it expects to pay its local producers $4.60 per
kilogram of milk solids for the 2015/16 season. Analysts are betting Fonterra will be able to meet or exceed that
forecast, according to a BusinessDesk survey taken after the latest auction result. Expectations range from $4.25/kgMS
to $5.30/kgMS with all but one of the six analysts forecasting a higher payout than Fonterra's current expectation. The
cooperative is due to review its forecast by early December as part of government regulations.
Dairy prices were down across all of the products on offer at the latest auction, and some contracts didn't trade amid
lacklustre demand with the auction lasting only about 90 minutes, the shortest period in five years. Still, even though
NZX whole milk powder futures have declined further in trading on the NZX today, analysts are betting that lower
production from New Zealand, which accounts for about a third of global dairy exports and the lion's share of whole milk
powder, will start to bite later in the season, pushing up prices.
"Markets anticipate other producers can offset NZ declines," said ASB Bank rural economist Nathan Penny, who expects the
nation's production to fall 6 percent this season, the biggest drop since 1999. "We think this market assumption is
misplaced - lost NZ exports are too big to cover. The EU and others cannot fill the NZ hole."
New Zealand milk production hit its seasonal peak last month and lower cow numbers and the prospect of an El Nino
drought crimping production means there is little prospect of making up lost ground later in the season, analysts said.
"With that in mind and as markets discover that milk is thin on the ground over coming months, we expect prices to
regain the lost ground from the last two auctions," said the ASB's Penny. "Despite the recent falls, we continue to
expect dairy auction prices will rise over the course of the 2015/16 season."
(BusinessDesk)