sign up log in
Want to go ad-free? Find out how, here.

Fonterra doesn't see recent strong dairy price rises as sufficient reason yet to increase its forecast price; continued volatility seen

Rural News
Fonterra doesn't see recent strong dairy price rises as sufficient reason yet to increase its forecast price; continued volatility seen
<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

Economists still believe Fonterra may yet raise its forecast milk price for the current year even though the diary giant declined to do so in an update today.

Fonterra is for now maintaining its current forecast Farmgate Milk Price for the 2014/15 season at $4.70 per kgMS, despite recent strong rises in global dairy prices and previously expressed expectation among some economists that the price might be increased.

However, economists say there is definitely upward pressure on the Fonterra forecast.

Westpac senior economist Michael Gordon said that Westpac's forecast of a $5.00/kg farmgate milk price for the end of the season required "further modest price increases" at the next few GlobalDairyTrade auctions.

"We're reasonably confident that this will happen, as drought conditions in New Zealand put a squeeze on the global milk supply," he said.

Fonterra has indicated that it will provide a full business update when it reports its interim results on 25 March.  

Gordon said there were two more GDT auctions before then.

"...Depending on how prices perform in those auctions, we may see an upgrade to the milk price forecast at that date," he said.

In its brief update today, Fonterra said that along with the previously announced estimated dividend range, this amounts to a forecast Cash Payout of $4.95 – $5.05 for the current season.

There was no update on the forecasts for next year.

Fonterra chairman John Wilson said that although dairy commodity prices had gone up, the increase was not sufficient to raise the forecast Farmgate Milk Price at this time.

"Since December, GDT prices for Whole Milk Powder have increased 4% and Skim Milk Powder prices have increased 13%,” Wilson said.

"There continues to be significant volatility in international commodity prices. New Zealand volumes are down, with continued uncertainty in milk production due to climatic conditions in New Zealand with droughts in Canterbury, Marlborough, Central Otago and North Otago.

“Today’s forecast reflects the Board and management’s best estimates at this time. We are advising farmers to continue to be cautious with budgeting and we will update them as the season progresses.”

Chief executive Theo Spierings said Fonterra was sticking to its strategy, with confidence in the long-term fundamentals of dairy demand.

“We will provide a full business update when we report our Interim Result on 25 March,” Spierings said.

Fonterra is required to consider its forecast Farmgate Milk Price every quarter as a condition of the Dairy Industry Restructuring Act (DIRA).

Dairy prices

Select chart tabs

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

6 Comments

Time the economists realized payout isn't just made up of gdt prices. There are other factors that affect payout also. Milk price will not increase this season.

Up
0

Seriously...whoever you are... it's time to _FIRE_ those economists.

One minute they screaming how the farmgate price needs to be dropped because the gDT price won't support the existing price.
"Nek-Minit" they're screaming how the farmgate price has to rise because a predicted bump in gDT has occurred.

They're incompetent and their noise is a distraction to others.

Up
0

the distraction is the purpose, think spectrum fulfillment...

 

Up
0
Up
0

Mm. Others paint on another canvas.

 

Foremost on the Periphery Fragility List, I have posited that dollar-denominated emerging market (EM) debt is a global Credit boom weak link. And no boom has generated external dollar-denominated debt comparable to China’s. Chinese external debt more than doubled over the past four years to approach $1.0 TN. The scope of “hot money” flowing into China in recent years to play an appreciating currency and enticing yields is unknown but surely massive. And with the historic Chinese Bubble now faltering, there are myriad forces now working against the renminbi. In a period of intense currency wars, the Chinese peg to king dollar has become a major issue for China’s exporters. There is also the specter of a reversal of speculative flows, spurred on by deteriorating economic prospects and weakened Credit dynamics. And throw in the likelihood that wealthy Chinese have one eye on the exit, fully intending to exit a crumbling Bubble.
 

February 27 – Financial Times (Patrick McGee and Michael Hunter): “China’s renminbi has touched a 28-month low against the US dollar, the latest slide reflecting central bank activity and investment flows. On Friday the renminbi fell 0.17%, the largest downward move for the tightly-controlled currency in a month… The PBoC ‘fixes’ the currency’s mid-rate each day, allowing investors to then trade the currency 2% higher or lower. The decline in the renminbi continues pressuring Chinese companies that borrowed in US dollars and expected to benefit over time by paying back such debts via an appreciating domestic currency. The rising dollar has upended that strategy and mainland companies are paying down dollar debt to avoid incurring a loss, in turn further boosting demand for the US currency. Dariusz Kowalczyk, senior strategist at Crédit Agricole, said anecdotal evidence suggests there continues to be ‘very strong demand for dollars in the mainland market’ over recent days and weeks, pushing the currency to the low end of its trading band.’”
 

February 25 – Wall Street Journal (Andrew Browne): “China’s superrich are nervously watching as the Chinese currency weakens against the dollar. Because of the extreme concentration of money at the apex of Chinese society, national stability rests to an extraordinary extent in the hands of just two million or so families. They are the top 1% of urban households, and already, their confidence in China’s future under President Xi Jinping is shaky. Many are fleeing with their cash--not all of it, but enough to bid up prices of luxury real estate from Mayfair to Manhattan to Mission Bay, a waterfront neighborhood of Auckland, New Zealand. Financial authorities are trying to ensure that the remainder doesn’t disappear across the borders. A potential trigger for a disorderly exodus of capital, one that could threaten the entire fragile financial system, would be a precipitous decline in the value of the Chinese currency… There’s little doubt that the growing anxieties of China’s superrich also weigh on currency decision-making. Mr. Xi has shaken up the status quo with the fiercest campaign against corruption in modern times. That’s creating political tensions at the heart of the Communist Party. The Gilded Age is over: We’re in a new era of austerity. All this uncertainty has unsettled the owners of China’s great fortunes who are now focused on protecting their capital.”
 

The Chinese Credit Bubble has been historic, dwarfing the fateful Japanese Bubble from the eighties. Arguably, China’ Bubble today even exceeds its mirror image U.S. Bubble. I have also referred to the Chinese renminbi link to the dollar as the King of All Currency Pegs. The bullish consensus scoffs at notions of Chinese fragility. With an international reserve position of $3.8 TN (and shrinking), the belief is that China has more than sufficient “money” to stimulate the economy, recapitalize the banking system and support the renminbi. Yet with anecdotes suggesting mounting outflows and heightened nervousness, a destabilizing dislocation in renminbi trading becomes a real possibility.
 

How long will the PBOC be willing to use the nation’s reserves to allow speculators, fraudsters and Chinese elite to cash out of China at top dollar? Chinese officials confront great challenges that will require difficult decisions. So far, bullish sentiment remains impervious to the major uncertainties enveloping China’s economy, financial system and policymaking. The perception that Chinese officials have everything well under control could soon be challenged. Read article

Up
0

If memory serves, the normal process is for the Chinese government to decide that it's "elites" have misbehaved then seize ALL their property in the name of the Chinese People.  that particularily includes foreign holdings.

Up
0