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Unwelcome Surprise

Key highlights

In a surprise move, Fonterra trimmed its 2015/16 milk price forecast by 45 cents to $4.15/kg.
This move was very much in line with our own earlier revision to $4.10/kg.
However, Fonterra maintains its confidence in long-term dairy demand – a view we share.
 

Report prepared by:

Nathan Penny, ASB Rural Economist
Phone: +64 9 448 8778
Email: nathan.penny@asb.co.nz


Summary:

In a surprise move today, Fonterra trimmed its 2015/16 milk price by 45 cents to $4.15/kg of milk solids.  This move was very much in line with our earlier revision to $4.10/kg last week.

The revision comes as dairy prices have been softer than expected over the last two months.  Dairy markets remain over-supplied.  And more recently, weak financial and commodity market sentiment on the back of Chinese growth concerns has spilled over into dairy markets, adding to downward pressure on prices.

However, our long-run dairy view remains positive.  Current low prices are unsustainable and, as producers respond to low prices in earnest, prices will lift over the year.  With this in mind and a more favourable exchange rate in play, we continue to expect the milk price to lift to $6.50/kg next 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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