Fonterra cuts NZ forecast price in wake of plunge in global prices

The forecast price cut comes in the wake of a plunge in prices at the Global Dairy Trade (GDT) auction on August 15.

Fonterra has sliced a further NZ25 cents a kilogram milk solids from the price - taking its range to $NZ6-$NZ7.50/kg MS with a midpoint of $NZ6.75/kg MS.

Just two weeks ago, Fonterra slashed its forecast NZ farmgate milk price from a midpoint $NZ8/kg MS to a midpoint $NZ7/kg MS.

Some analysts had already factored in a further fall after Tuesday's auction, where whole milk powder (WMP) prices fell almost 11 per cent.

ASB cut its forecast NZ farmgate milk price to $NZ6.60/kg MS.

Fonterra's decision earlier this month to increase the quantity of WMP and skim milk powder offered at the auction has weighed heavily on the market.

Analysts have speculated the decision may have been prompted by buyers indicating they no longer wanted to buy directly from Fonterra on contract but wanted to buy at auction.

Fonterra CEO Miles Hurrell said GDT prices had continued to fall since it revised its price earlier this month, requiring a further forecast price drop.

"GDT prices have fallen sharply since we released our opening forecast for the season in May, with the overall index down 16 per cent over that period," he said.

"While our wide forecast range assumed movement in GDT prices, whole milk powder prices fell 10.9pc in the most recent trading event requiring us to revise our position again.

"Reduced demand from key importing regions for whole milk powder is weighing on prices."

Mr Hurrell said although demand was expected to lift next year, growth was expected to be subdued.

"This is a challenging time for New Zealand's dairy farmers and the co-op is doing all it can to support its farmers," he said.

Want to read more stories like this?

Sign up below (select Dairy News) to receive our e-newsletter delivered fresh to your email inbox twice a week.