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Fonterra cuts production forecast for second time in two weeks

Friday 15th March 2019

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Fonterra Cooperative Group lowered its milk collection forecast for the current season for the second time in two weeks. 

It now expects to collect 1,510 million kilograms of milk solids for the season through May 31 due to ongoing dry weather in New Zealand, it said.

On Feb. 28 it scaled back its milk collection forecast by 20 million kg to 1,530 million/kgMS. Milk collection was 1,505 million/kgMS last season.

"It is a reflection of how quickly the weather changes," said Bank of New Zealand senior economist Doug Steel.

Fonterra said the dry weather was particularly acute in the North Island, impacting production in the second half of the season. Earlier this month, DairyNZ farm performance general manager Vanessa Winning warned that dry weather meant farmers were making calls on feed planning, milking frequency and drying off.

Fonterra also said it will reduce its offer quantities for its product range on Global Dairy Trade during the next four months. There is no change to its forecast offer quantities on Global Dairy Trade over the 12 month period for all products.

The lower production and the lower offer quantities on the GDT platform will likely support milk prices.

"While it is not so good for production and GDP-type measures, it is certainly price supportive," Steel said.

Milk prices have risen in the past seven GDT auctions, with average prices reaching US$3,309 a tonne in the latest auction. 

Steel noted, however, the market has a more muted reaction to dry weather in New Zealand than it did a few years ago. "In years gone by you would have seen whole milk powder prices a whole lot higher," he said. 

Once Europe removed quotas in 2015 it opened up the possibility for farmers there to ramp up milk production if New Zealand experienced dry weather, he said.  "Buyers know that can happen so there is no need for panic buying," said Steel.

Units in the Fonterra Shareholders' Fund last traded at $4.37 and are down 5.8 percent so far this year

(BusinessDesk)

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