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Fonterra forecast milk price unchanged at $4.25/kgMS; tweaks planned for milk price manual

Monday 1st August 2016

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Fonterra Cooperative Group kept its forecast farmgate milk price unchanged at $4.25 per kilogram of milk solids while proposing a change to the way it calculates the payout that could add 5 cents/kgMS.



The forecast milk price for 2016/17 means that including earnings per share of 50 cents to 60 cents the total payout available to farmers will be $4.75 to $4.85, still below the break-even mark for many farmers. Fonterra chairman John Wilson says the milk price forecast reflects continued global uncertainty and the strong kiwi dollar, which erodes the competitiveness of New Zealand dairy exports.



"The cooperative is aware of how tough the situation on farm remains," Wilson said. "We are focused on delivering as much cash as possible to our farmers by bringing payments forward while maintaining a strong balance sheet."



“We expect global milk supply and demand to come into balance over the course of this season," he said. "Farmers globally are producing less milk in response to lower prices and we are forecasting a 3 percent reduction in our New Zealand milk collection for this season.”



Fonterra did hold out some hope for farmers based simply on amending the way it calculates the milk price. Separately today it released proposed changes to the Farmgate Milk Price Manual for the 2016/17 season that would expand the basket of reference products it is based on.



Under the changes it would include revenue from spot sales of commodity whole and skim milk powder and anhydrous milk fat, along with the spot price of butter and buttermilk powder. Currently it only includes sales of WMP, SMP and anhydrous milk fat made through the GlobalDairyTrade auction site.



"The estimated impact of the change on the farmgate milk price for the 2016/17 season amounts to an increase of four to five cents per kgMS based on analysis of the change over the past four years," Fonterra said. The proposed changes have been submitted to the Commerce Commission for approval.

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