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A conservative start

Key highlights

Fonterra’s $4.25/kg opening milk price forecast for 2016/17 is more conservative than we had expected.
We continue to expect that the milk price will finish the season around $6/kg.
The 2015/16 (current) season milk price remains at $3.90/kg.

Report prepared by:

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

Fonterra’s first cut at next season’s milk price of $4.25/kg milk solid was much lower than the informal market consensus of $4.60/kg and our expectation of $4.80/kg.

Advance payments to farmers for the first few months of the season were set at $2.50/kg (before adding capacity adjustment payments at an average 51 cents/kg), 50-65 cents lower than for a year earlier. From September the advance payments rise to $3.00-$3.30 for the bulk of the season, which puts them in the upper part of the usual 65%-75% band of the season’s milk price forecast. For much of next season the advance payments will be 15 cents/kg firmer than the season just drawing to a close.

Fonterra did lift the current season’s retrospective payments (i.e. the top-up payments) for August and September by 10 cents/kg. The current season’s milk price forecast remained at $3.90/kg. The final price won’t be set for several months, but is unlikely to change materially.

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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