Global milk glut and weather reasons for reduction in Fonterra's farmgate milk price
Fonterra said its reduction in farmgate milk price and drop in margin by €14 million for the first quarter of 2018 is due to the surge in global milk supply and adverse weather conditions.
Fonterra Co-operative Group revised its 2018/19 forecast Farmgate Milk Price range from $6.25-$6.50 per kgMS to $6.00-$6.30 per kgMS.
Fonterra Chairman John Monaghan said the revision in the forecast Farmgate Milk Price range is due to the global milk supply remaining stronger relative to demand, which has driven a downward trend on the GlobalDairyTrade (GDT) index since May.
“Since our October milk price update, production from Europe has flattened off the back of dry weather and rising feed costs. US milk volumes are still forecast to be up one per cent for the year,” says Mr Monaghan.
“Here in New Zealand, we are maintaining our forecast collections at 1,550 million kgMS. NIWA is saying its likely we will see an abnormal El Nino weather pattern over summer and this could impact our farmers’ milk production.
“Demand from China and Asia remains strong. However, we are seeing geopolitical disruption impacting demand from countries that traditionally buy a lot of fat products from us.
“Today’s forecast range assumes dairy prices will firm across the balance of the season. This is consistent with the views of other market commentators.
“There are still a number of unknowns in the global demand and supply picture and we recommend farmers budget with ongoing caution. Fonterra’s Advance Rate has been set off a milk price of $6.15 per kgMS.”