1 May 2015

Fonterra lifts milk production forecast

2:07 pm on 1 May 2015

Fonterra is now predicting it will collect slightly more milk this season than last season, which was a record year for milk production.

Fonterra logo

New Zealand's Fonterra is the world's largest dairy processor. Photo: AFP

Back in January, it was predicting a drop of more than 3 percent in this season's milk harvest as farmers responded to drought conditions in some areas, and the low milk payout, by cutting back on production to reduce costs.

At that point, its daily milk collection was running 6 percent behind the 2013/14 season.

However, based on recent growing conditions on farms, Fonterra's latest estimate is for milk production to top 1.6 billion kilos of milk solids for the season,.

That is a little above the 1.58 billion kilos it collected last season.

Fonterra chief financial officer Lukas Paravicini said there was still a month to run and the final tally would depend on what farmers did during the end of the season.

"Our milk production curve is very tied, year after year, in the first part of the season, over the peak," he said.

"We are trending a little bit better now but this is just a smaller correction towards the end of the season and there's still volatility in terms of how quickly the farmers dry off the cows, and that will continue to reduce the production again."

Global impact

Fonterra's milk production can have a bearing on international dairy prices.

It is the world's largest dairy processor and, if it puts more product into the twice-monthly global dairy trade auctions, as a result of an improvement in its milk supply, that will put even more pressure on auction prices, which have fallen by more than 20 percent since February.

That price decline was behind Fonterra's decision this week to drop its forecast milk payout by another 20 cents a kilo of milk solids.

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