Economists say Fonterra may be too pessimistic on milk production

Thursday 28th February 2019

Fonterra Cooperative Group lowered its full-season production forecast but some economists think it may be too pessimistic.

Earlier today, Fonterra said it now expects to collect 1,530 million kilograms of milk solids, versus a prior forecast of 1,550 million kgMS, due to recent hot dry weather. The latest forecast is still 2 percent higher on the previous season.

Season-to-date milk collection is up 4.5 percent at 1,083 million kgMS across New Zealand as farmers have benefited from stellar growing conditions.

"We did have very good growing conditions for spring but certainly the hot period that New Zealand has started to experience in the last four to six weeks has really started to impact volumes," interim chief executive Miles Hurrell told journalists on a conference call.

Westpac Bank senior economist Anne Boniface is sceptical.

"Fonterra’s milk collections in the final four months of the season would need to be 5 percent lower than the same period last year," she said.

"This appears a bit pessimistic to us. While there is no doubt that dry weather over February has impacted pasture growth and milk production in many parts of the country, excellent conditions over spring left farmers in some regions relatively well placed to cope with a dry spell," she said.

ANZ agri-economist Susan Kilsby noted that autumn last year was outstanding in terms of pasture growth and so "I am expecting production for March, April and May to be behind last season."

But she said Fonterra's projection is "reasonably pessimistic."

Fonterra's latest forecasts may also not have factored in recent rains, which have alleviated some of the dry conditions.

Boniface noted concerns about the potential production decline could lead to a further lift in prices.

"This would add to the upward pressure on both our $6.30 milk price forecast for the current season and our $6.75 milk price forecast for the 2019/20 season," she said.

Fonterra today lifted its forecast farmgate price to $6.30-6.60/kgMS from $6-6.30/kgMS.

(BusinessDesk)

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