20 Jan 2016

Fonterra's forecast under threat?

5:26 pm on 20 January 2016

Fonterra's forecast payout is coming under increased pressure following another slight fall in dairy prices overnight.

The overall price index fell 1.4 percent to $US2405 a tonne in the fortnightly global dairy trade auction.

The price of the key commodity, whole milk powder, which underpins Fonterra's farm gate milk price, eased 0.5 percent to $US2188 a tonne.

For many farmers to break even the price needs to be around the $3000 mark, which it hasn't been since March last year.

AgriHQ dairy analyst Susan Kilsby said Fonterra's forecast milk price of $4.60 a kilogram of milk solids was unsustainable with prices at current levels.

Global supply and demand remained unbalanced and the falls were not surprising, she said.

"What we're seeing out there at the moment, it is still a pretty weak market, with just simply demand not being sufficient to absorb the current supply of milk."

Ms Kilsby said small rises and falls were expected at the auctions in the coming months.

She said Fonterra would need to revise down its forecast payout if milk prices stayed at those low levels.

"It's certainly not really supporting that $4.60 any longer. The markets do sometimes surprise you and move up but at this point there's not too many indicators that that will happen.

"Dairy markets have been weak in a while and we're seeing a general slow down in the global economies. Oil prices are predicted to go even lower and a lot of those oil producing nations are large buyers of dairy products, so the outlook is not great at the moment for the current season," she said.

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