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Fonterra raises forecast payout again as global supply shrinks

Wednesday 21st September 2016

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Fonterra Cooperative Group, the dairy processor which will announce annual earnings tomorrow, hiked its forecast payout to farmers by 50 cents per kilogram of milk solids as global supply continues to decline, helping prop up dairy prices. 

The Auckland-based company raised its forecast payout for the current season to 5.25/kgMS from its $4.75/kgMS estimate last month. Chairman John Wilson said since the August review, global supply continued to decline in response to last year's slump in milk prices while demand had held up. Including forecast earnings of 50 to 60 cents, the total payout is forecast to be between $5.75 and $5.85. 

The increase comes after prices at the GlobalDairyTrade auction overnight extended their recovery, rising 1.7 percent with the biggest gains in cheddar and butter milk powder prices. However, prices for whole milk powder, New Zealand's key export commodity, dipped 0.2 percent, disappointing expectations with the futures market indicating they would climb 12 percent. 

"While we have seen some improvement in GDT auction prices recently, the high NZD/USD exchange rate is offsetting some of these gains," Wilson said. "There is still volatility in global dairy markets and we will continue to keep our forecast updated for our farmers over the coming months." 

Smaller rival Synlait Milk raised its forecast payout 50 cents to $5/kgMS earlier this week, citing the recent improvements in dairy commodity prices. 

Fonterra is scheduled to report earnings for the year ended July 31 tomorrow, with last season's low farmgate payout set to help the milk processor's profitability.

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