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Fonterra lifts milk price

Key highlights

Fonterra jumps its forecast 2015/16 milk price to $4.60/kg, slightly more than we thought we’d see today.
We still expect a $5.00/kg milk price ultimately, contingent on further USD price gains this season.
Fonterra now expecting milk collections to fall at least 5%; we expect 5% nationwide production drop.

Report prepared by:

Nick Tuffley, ASB Chief Economist
Phone: +64 9 301 5659
Email: nick.tuffley@asb.co.nz

Fonterra has lifted its 2015/16 milk price forecast and trimmed its expected milk collections for the current season. Fonterra now expects a milk price of $4.60/kg, from $3.85. We continue to expect that the milk price paid to farmers will end up at $5.00/kg. But at this point in the season it is a mild but positive surprise that Fonterra has revised up its outlook as far as it has. Fonterra now expects its milk collections to drop by at least 5% this season, in line with our view of a 5% drop in national milk production.

Fonterra’s forecast revision is mainly endorsing other views on dairy prices and production. The recent improvement in dairy prices is a key reason the RBNZ may choose to pause in October (we are still picking an October cut but it is a lineball call). The production fall is, however, going to drag on economic growth.

Farmers will still be under cashflow pressure over the rest of the season. But some of that pressure will ease if the higher forecast milk price translates into higher advance payments made to farmers over the season.

Read the full PDF Report

Important Disclaimer - The views expressed herein are those of the authors and are based on information believed but not warranted to be correct. Any views or information, whilst given in good faith, are not necessarily the views of ASB Bank Limited and are given with an express disclaimer of responsibility and no right of action shall arise against any of the authors, ASB Bank Limited or its employees either directly or indirectly out of any views, advice or information.
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