22 Mar 2018

Fonterra's price forecast 'ambitious' - expert

6:23 pm on 22 March 2018

Fonterra's increased forecast milk price might not stay up for long, according to AgriHQ and Rabobank.

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Photo: 123RF

On Wednesday the dairy giant raised its forecast payout to suppliers by 15 cents to $6.55 a kilo of milk solids, making it the highest forecast in four years.

It has forecast a dividend range of 25-35 cents a share, bringing the total potential payout up to $6.80 - $6.90.

However, AgriHQ analyst Amy Castleton says rising levels of global milk supply is still putting pressure on the market and this will dampen the possibility of farmers getting this higher payout.

"Dairy commodity prices really need to lift for Fonterra to be able to achieve its ambitious $6.55/kg MS forecast... this is looking fairly unlikely."

Rabobank senior dairy analyst Michael Harvey is also feeling cautious, and said the forecast could be short-lived due to the looming peak in European milk supply.

"It's going to come in the coming weeks, their peak of season really starts to ramp up through April, May, and June... and we're already seeing signs of increased trading activity out of Europe.

"It's going to be a question of not so much when the pressure comes, but on what product is the most pressure... whether they put all that additional milk into cheese and whey, or does it go into liquid milk, does it go into the whole milk powder complex..."

Mr Harvey said he doesn't expect the milk price to lift any further this season or next.

"We're a little bit cautious about the 2018/19 season, it might be an early price guidance of slightly lower than were they finish."

Fonterra Chairman John Wilson

Fonterra Chairman John Wilson Photo: RNZ / Dan Cook

Fonterra chair John Wilson said it's the third highest forecast in the past ten years, and is driven by more balanced supply and demand.

Mr Penno said the co-operative is keeping a close eye on Europe's spring milk production.

He warns that farmers shouldn't be budgeting on the higher price just yet.

"We always ask our farmers to show the normal caution... we certainly believe what is most likely to occur with global prices and Fonterra performance...that we have confidence in that $6.80 to $6.90.

"It's always important that we give the most likely figure to our farmers so they can make the right decisions in their farming businesses."

There's still strong opportunity and demand in the Chinese infant formula market, he said.