Fonterra has announced an opening forecast farmgate milk price of $4.25 per kilogram of milk solids for the 2016/17 season, which represents an increase of 35 cents on the forecast for the current season.
The Co-operative – which is required under the Dairy Industry Restructuring Act to announce its forecast milk price at the beginning of each season – said its forecast took into account a range of factors including the high NZD/USD exchange rate, supply volumes from other major dairying regions, current global inventory levels and the economic outlook of major dairy importers.
Chairman John Wilson said the strength of the Co-operative’s balance sheet allowed them to increase the advance rate in the first half of the new season.
He also announced that the company would be bringing forward payments for this season’s milk, providing “some assistance” with on-farm cashflows.
“We are doing this while remaining within our policies and maintaining our financial discipline. The New Zealand dollar is relatively high and is currently impacting milk prices and our forecasts,” Mr Wilson added.
“We are expecting global dairy pricing to gradually improve over the season as farmers globally reduce production in response to ongoing low milk prices, however we continue to urge caution with on-farm budgets.”
Chief executive Theo Spierings said the global demand for dairy is expected to increase “by two to three per cent a year”, mainly due to the growing world population and the increasing middle classes in Asia.
“In addition to global supply growth slowing, we are seeing imports into major dairy markets improving compared to a year ago. China dairy consumption growth remains positive and its demand for imports has been steady over recent GlobalDairyTrade events,” Mr Spierings said.
“We expect these drivers to result in the globally traded market rebalancing.”