Pressure mounts on forecast payout

AUCKLAND: The risks are mounting against Fonterra holding its current forecast milk payout and this week’s GlobalDairyTrade (GDT) auction could be yet another nail in the coffin.

The auction results will be released early tomorrow, New Zealand time.

Fonterra’s current forecast is $6.25to$6.50 per kilogram of milk solids but Mark Lister, the head of wealth research at Craigs Investment Partners, says the trends in both dairy pricing and the renewed strength in the kiwi dollar could result in the actual payout settle closer to $6.00 or $6.25.

‘‘Dairy hasn’t been going well. It’s just been steadily drifting lower and now we’ve got the New Zealand dollar going in the other direction as well,’’ Mr Lister said.

The headline GDT index fell 2.1% at the last auction and was the 15th decline in the past 18 fortnightly auctions.

‘‘Dairy prices are now 17.7% below the 2018 peak back in May and 6.2% lower yeartodate,’’ Mr Lister said.

Global dairy products are priced in US dollars and the New Zealand dollar has been trending higher against the greenback since early this month.

The kiwi gained more than 2% against the US dollar last week, taking its gains for November so far to more than 5.5%, although it is still down more than 3% from where it began this year.

Mr Lister said most people were becoming more convinced Fonterra would not make its current forecast.

‘‘It’s hard to see a big turnaround in the trend this week — the most we can probably hope for is some stability. They’ve got a long way to go to get back to where they were.’’

Still, ‘‘anything that starts with a six [$6] is probably satisfactory, but obviously higher would be better.’’

Usually, New Zealand dollar strength means the US dollar is retreating, but not at the moment — the greenback is still rising. It is just that the New Zealand dollar has been rising more. — BusinessDesk