Unexpectedly, Fonterra doesn't raise farmgate milk price from $6/kgMS in latest update

Unexpectedly, Fonterra doesn't raise farmgate milk price from $6/kgMS in latest update

Fonterra has issued this Statement on the NZX:







Fonterra is required to consider its forecast Farmgate Milk Price every quarter as a condition of the Dairy Industry Restructuring Act. For this purpose, Fonterra Co-operative Group Limited today confirmed the forecast Farmgate Milk Price of $6.00 per kgMS announced in November.

When combined with the forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total pay-out available to farmers in the current season is forecast to be $6.50 to $6.60 before retentions.

Fonterra Chairman John Wilson says the Co-operative is confident that this forecast is at the right level, following the 75 cent rise in its forecast Farmgate Milk Price in November last year.

“The global outlook for dairy remains positive. Since November, the global market for commodity dairy products has remained relatively balanced and we expect global prices to continue to hold or gradually increase over the back half of this season – a view shared by most global analysts,” said Mr Wilson.

Fonterra also announced that it would increase the monthly Advance Rate it pays to farmers. The Advance Rate for February, paid in March, has increased to $4.85 per kgMS.

“Our confidence in the global dairy market at this stage of the season, combined with the strength of our Co-operative, has enabled us to increase the monthly Advance Rates more than we normally would at this time of the year,” said Mr Wilson.

Fonterra’s Global Dairy Update for February reported that the Co-operative’s New Zealand milk collections were showing signs of recovery. Originally expected to be down seven per cent for the season, the New Zealand collections forecast has now improved to a five per cent decline on last season.

A history of each season's payout from all dairy companies is here.

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As long as the EU cannot sell it's intervention stocks we know the demand side of the industry has a problem. How would anyone like trying to sell a product when your buyers know there is an auction at the EU weekly, and they struggle to get a single bid and the product has a shelf life?
The EU stocks are getting bids at $1600 US, low enough to cause Fonterra a headache. They have over 350,000 tonnes to sell and in the last 4 auctions they managed to move 40 tonnes.


The European Commission began to offer SMP intervention stocks up for sale during Dec ’16 via a tendering process. Over 21,000 tons of SMP were put up for sale, however just 0.2% of the product sold. Three additional tending processes have taken place since, with no product selling. Bids have been rejected as they were too far from the prevailing market prices.


That means, as expiry-date looms, the European Commission will have to make a decision to either unload the stuff on the market or destroy it. Watch this space. Discover how weak or strong the longs are