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Fonterra cuts 2019 forecast 25 cts as US, Europe, Latin America boost supply

Friday 31st August 2018

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Fonterra Cooperative Group has cut its forecast payout to farmers by 25 cents per kilogram of milk solids, blaming increased supply in Europe and the Americas,  and appetite for dairy products in emerging markets cooling. 

The world's biggest dairy exporter lowered its forecast farmgate milk price to $6.75/kgMS from $7/kgMS. Chair John Monaghan said the US, Europe and Argentina boosted global supply over the past quarter, while at the same time demand waned in some emerging markets. That's still higher than AgriHQ's forecast for $6.43/kgMS. 

"These regions have a big influence on the supply and demand balance and therefore global prices," Monaghan said in a statement. "At the same time, demand for whole milk powder and dairy fats is showing signs of slowing in some parts of Asia, Africa and the Middle East.”

Dairy prices fell 3.6 percent as the last Global Dairy Trade auction with New Zealand production expected to increase this season. 

Fonterra retrenching after a change at the top with Monaghan taking over the chair after John Wilson retired due to ill-health, and chief executive Theo Spierings left early as a poor operating performance contributed to a lower dividend and reduced farmgate payout for the 2018 season.

The board has put its search for a new CEO on hold while it works out what skills the business needs, appointing Miles Hurrell as interim CEO. 

Hurrell today said the weaker New Zealand had partially offset declines in global dairy prices, and farmers needed a "realistic assessment" of the market. 

“It’s still very early in the season and a lot can change over the coming months," he said. "A drop in the new season milk price forecast will be frustrating to our farmers, but it’s important we give them the facts so they can make informed decisions in their farming businesses."

Fonterra Shareholders' Fund units last traded at $5.04 and have dropped 19 percent over the past 12 months. 


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