Fonterra signals worse to come

While it stresses it's still early in the season, dairy cooperative doesn't paint an optimistic picture.

Fonterra Cooperative Group [NZX: FCG], the world's largest dairy exporter, held its forecast for lower milk volumes this season and signalled production may decline further.

Auckland-based Fonterra reiterated that it expects 2015/16 milk volumes to fall between 2-3%  to 1589 million kilograms of milk solids compared with year earlier levels. However it may revise the volumes lower as farmers pull back production through the season, it said in a statement.

Fonterra, New Zealand's largest milk processor, last month cut its forecast farmgate milk price payout to farmers for the 2015/16 season to $3.85/kgMS after dairy prices slumped to a six-year low amid increased supply and weak demand. The lower prices have prompted some farmers to pull back on production, with lower volumes on the GlobalDairyTrade platform underpinning price increases at the last two events.

"Farmers are responding to the lower forecast farmgate milk price by returning to more traditional farming practices," said Fonterra group director cooperative affairs Miles Hurrell. "They are reducing the use of feed supplements, and lowering stocking rates per hectare as they concentrate on utilising pasture.

"Market data from several independent sources show that cows are being culled at higher rates than last season while many of our farmers are also providing early advice that they are expecting significant year on year volume reductions. In addition, currently our daily milk collection average is lower than for the same period last year."

Still, it is early in the season, and any forecast at this point is very dependent on weather conditions, which have so far been poor for production, Hurrell said.

"Given these variable factors, we have decided to maintain our current forecast milk volume at this very early stage of the season," he said.

(BusinessDesk)

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