Quick correction for milk price Fonterra

Fonterra made early September a milk price forecast has been announced for the 2018/2019 season. This amounted to $6,75 per kilo per kilo of milk solids (MS). This is lower than in the previous season. More than a month later, the New Zealand dairy company announced that the forecast was corrected and ended up in the range between $1 and $6,25 per kilo of MS. The chance that the milk price will be at the bottom ($6,50) is more realistic than that it will be at the top ($6,25) of the range.

Milk supply is growing
According to the cooperative, the worldwide increased milk supply is the reason for the negative correction. For example, it is assumed that the milk supply in the own country will increase by 1,3% to 1,55 billion kilos MS. This is due to the beautiful weather conditions and an early calving season on the South Island.

The New Zealand dairy also provides a larger milk supply in other parts of the world, such as the United States and Argentina. Despite the prolonged drought period in Europe, Fonterra assumes that the milk supply there will remain stable.

Fonterra emphasizes that the supply is erratic because it depends on the weather conditions. However, with current knowledge, Fonterra expects that the supply will grow faster than the demand for dairy products.

Annoying message
Miles Hurrel, interim CEO at Fonterra, says he can imagine that the lower milk price will not go down well with dairy farmers. However, it is important that they are informed of the adjustment at an early stage, so that there is time to manage their business operations.

Last year Fonterra booked for the first time a significant loss of $196 million. This setback means that Fonterra is probably cautious in creating (too) positive expectations.

1 NZ dollar = €0,5613