30 Jun 2016

Australian milk payouts set to drop

12:01 pm on 30 June 2016

Australia's two largest milk processors have cut milk prices for the coming season to $5 per kg or less.

Murray Goulburn has announced that it's forecasting the closing price of the 2016/17 season to be $4.80 per kg with a net opening price of $4.31 per kg after application of the Milk Supply Support Package repayment.

Fonterra building in the Waikato

Fonterra building in the Waikato (file). Fonterra Australia has joined Murray Goulburn in forecasting lower milk prices for the coming season. Photo: RNZ / Claire Eastham-Farrelly

Fonterra Australia has followed suit and is dropping its closing price for the 2016/17 season to $5.00 per kg, with an opening farmgate milk price of $4.75 per kg.

Fonterra chief operating officer of velocity and innovation Judith Swales said this was a responsible opening price that reflects current market conditions.

"Our forecast is based on the Australian dollar holding at around 74 cents to the US dollar and reflects the revenue we expect to earn on products produced using our manufacturing assets.

"While we are still seeing an imbalance between global milk supply and demand there are signs in key milk producing areas of a slowdown in production and increased imports into key markets such as China, Asia and Latin America. This supports our view of a recovery in global prices as we move through the season."

Murray Goulburn interim chief executive officer David Mallinson said commodity prices were still putting pressure on the company's performance.

"Global conditions have not improved, and the latest data suggests excess global inventories, including the impact of European intervention, may have surpassed the equivalent of 6 billion litres of milk."

Mr Mallinson said key commodity prices had remained below $US3000 per tonne for almost two years, which was much longer than historical price downturns.

Get the RNZ app

for ad-free news and current affairs