19 Nov 2008

More market volatility ahead, Fonterra warns

6:13 am on 19 November 2008

Fonterra is warning farmers to expect current price volatility in global dairy markets to continue, for the short to medium term.

In the company's annual report to shareholders, chairman Henry van der Heyden says market unpredictability, rising costs, a high currency and financial turmoil made for a challenging business environment for the financial period ending July this year.

But despite this the company achieved the best financial result since it was formed, and distributed a total of $9.1 billion to shareholders.

Mr van der Heyden says the 2007/08 season has fundamentally changed market dynamics and volatility is more likely to be the norm, rather than the exception, in the medium term.

With global financial confidence down and an inevitable lag between price signals guiding farmer decisions around production, he says there may be an imbalance between demand and supply influencing prices.

Mr van der Heyden says this makes it increasingly difficult to forecast prices. He says there is every chance they could go down, as well as up, over the course of the coming season.