3 Aug 2012

Pressure on Fonterra to cut milk price forecast - economist

7:34 am on 3 August 2012

ANZ economist Con Williams believes the strong New Zealand dollar increases the pressure on Fonterra to cut its milk price forecast for the current year.

In May, Fonterra made an initial forecast of $5.95 - $6.05 per kg of milk solids for the current season, made up of a milk price of $5.50 and an added dividend of between 45 - 55 cents.

Mr Williams says while dairy prices rose 3.5% at its global auction overnight on Wednesday, the high dollar to date puts a payout closer to $5.10.

He says the high New Zealand dollar has been a drag on farm gate pricing and in the year to date the New Zealand currency and spot prices on global dairy trade would indicate there's some pressure on Fonterra's forecast.

Mr Williams says there might be a downgrade in Fonterra's outlook in the future if the high New Zealand dollar persists and there is not a lift in dairy prices.

Despite the monthly lift in July, dairy prices have fallen 26% over the last year, and are now 30% lower than the historical peak.

Fonterra declined to comment on its milk price deliberations. A spokesman says nothing will be decided until the board's next meeting in September.