Commodities Buzz: Fonterra Cuts Its Milk Payout Forecast For 2017-18

Lloyd Doyle
December 7, 2017

Chairman John Wilson said in a statement on Wednesday that strong European production and high levels of skim milk powder stockpiles as a result of European Union intervention had put downward pressure on global prices.

"In effect, our farmers will receive equal or higher payments for their milk over this period than were scheduled under the previous $6.75 milk price".

Fonterra also cut its forecast New Zealand milk collection for this season, by 1 per cent to 10525 million kilograms of milk solids from the 10540 million kilograms it projected in October, which itself was a downgrade.

ASB senior rural economist Nathan Penny noted a "hint of conservatism" in Fonterra's updated forecast.

"All up, we are comfortable with our more optimistic view given the balance of factors".

Dairy product prices rose overall at the GDT auction, increasing for the first time in five auctions, amid expectations that dry weather conditions in New Zealand might ease milk production.

Last week Fonterra cut its forecast for 2018 earnings per share to a range of 35 to 45 cents, from 45 to 55 cents after an arbitration tribunal in Singapore ruled it must pay 105 million euros ($180m) to Danone over 2013's botulism scare recall.

Globally-traded butter prices have fallen 25 per cent since September - but supermarket shoppers shouldn't expect to bank all of that benefit. The main counter-weighting factor operating was robust European Union production.

Nearest dated contracts fell the most - prices for butter to ship in January dropped 24.3 per cent, according to Castleton.

"The lower volume on offer appears to have provided some support as almost all of this product was sold", Amy Castleton, AgriHQ dairy analyst, said in a note.

The lower gross margin was in line with the second half of a year ago.

Revenue in the first quarter rose 4 per cent to $4 billion although sales volumes dropped 20 per cent to 3.9 billion liquid milk equivalent and said its gross margin fell to 16.7 per cent. The co-operative expected performance to be weighted to the second half of the year and remained confident of its full-year forecasts following revisions after the recent Danone announcements.

"We are focused on continued tight operational and financial discipline and a key eye on our customers' needs to maximise sales opportunities".

Other reports by Iphone Fresh

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