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Monday 22 October 2018

New Zealand's Fonterra cuts farmgate milk price outlook by 5.2%

Rushil Dutta

New Zealand’s Fonterra reduced its farmgate milk price forecast for the 2017/18 season by NZ$0.35, or 5.2pc, to NZ$6.40 ($4.42) per kg of milk solids, citing volatility in the global dairy market.

Chairman John Wilson said in a statement on Wednesday that strong production out of Europe and continuing high levels of skim milk powder stockpiles as a result of a European Union intervention has created a downward pressure on global prices.

That offset strong demand for dairy in China, other parts of Asia and Latin America, Wilson added.

Last week, the world’s biggest dairy producer had flagged that its arbitration with French company Danone SA had an impact on its earnings guidance for the season but none on the farmgate milk price.

A arbitration tribunal had ordered Fonterra to pay Danone a smaller than expected 105 million euros ($124.05 million) over a contamination scare.

Fonterra also said on Wednesday that sales volumes in the first quarter fell 20pc to 3.9 billion liquid milk equivalent (LME), due to poor performance in its dairy ingredients business.

Revenue rose 4pc over last year to NZ$4 billion.

Global Dairy Trade

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Global dairy prices edged higher this week as volumes fell, bucking a recent trend of declining prices.

The GDT Price Index rose 0.4 percent, with an average selling price of $3,091 per tonne, in the fortnightly auction held in the early hours of the morning.

The index rose after falling for four consecutive auctions, underpinned by higher whole milk and skim milk powder.

Prices had risen in the second quarter on strong global demand and as production eased, but have since had a bumpy ride as supply has picked up.

"Auction volumes were down ... so in this context a lift was expected and actually quite modest," ASB said in a research note.

 It said it was sticking to its 2017/18 milk price forecast of $6.50 per kg and expected prices to consolidate in coming auctions.

"Short-term price risks are largely evenly balanced, with dry (New Zealand) weather on one hand and improving global production on the other."

Prices of whole milk powder, the most widely traded product, rose 1.7pc and skim milk powder rose 4.7 percent. But butter slumped 11.1pc.

A total of 29,514 tonnes was sold at the latest auction, falling 15.8pc from the previous one, the auction platform said on its website.


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