Milk price forecast set to be lowered

Fonterra is expected to downgrade its $7.00/kg milk price when it updates the forecast over the next few days.

The co-op, under its DIRA legislation, has to update its milk price every three months.

The last forecast for 2018/19 was issued late in May.

“Based on results since they opened at $7.00/kg, a downgrade is largely a done deal,” ASB senior rural economist Nathan Penny said.

“The debate is around to what number Fonterra moves — a market consensus has formed at around $6.40 to $6.50 kg,” he said.

At that level, though, the majority of farmers would still be in the black, Penny said.

At the last GlobalDairyTrade (GDT) auction whole milk powder — a key driver of the milk price — traded at US$2833 a tonne — down 10 per cent on its June traded price.

Earlier this month, Fonterra announced a revision to its forecast for the 2017/18 just passed, shaving 5c off the price to $6.70/kg in order to support the co-op’s balance.

Milk is Fonterra’s biggest input cost and high milk prices, while beneficial to farmers, can hurt the co-op’s bottom line.

Fonterra’s balance was already under pressure from the legal settlement to French food group Danone and the impairment of its investment in China’s Beingmate.

The co-op said at the time that $6.70/kg remained a strong milk price, historically.

The next GDT auction is due on Wednesday.