Economy

Fonterra's Farmgate Milk Price falls, revenue rises

Fonterra is expected to cut its forecast farmgate milk price for the current season as early as Thursday in line with weaker global dairy prices.

"What is driving this forecast is that despite demand for dairy remaining strong, particularly in China, other parts of Asia and Latin America, we are seeing strong production out of Europe and continued high levels of European Union intervention stockpiles of skim milk powder".

That offset high demand for dairy in China, other parts of Asia and Latin America, Wilson added.

Prices of whole milk powder, the most widely traded product, rose 1.7pc and skim milk powder rose 4.7 percent.

Prices had risen in the second quarter on strong global demand and as production eased, but have since had a bumpy ride as supply has picked up.

"Commodity prices just haven't been performing at a level where Fonterra was able to pay that NZ$6.75 that they have been forecasting", said Amy Castleton, dairy analyst at AgriHQ.

The New Zealand dollar fell overnight from a one-week high of $0.6916 to around $0.6880, though gains were exacerbated by a stronger US dollar.

New Zealand exports about 95 per cent of its milk production, and Fonterra is the country's dominant milk processor and world's largest dairy exporter.

Global dairy prices edged higher this week as volumes fell, bucking a recent trend of declining prices.

Shares in Fonterra closed flat yesterday at $5.80.

"While the result of the arbitration with Danone has impacted our earnings guidance for the season, it has no influence on our forecast Farmgate Milk Price", says Wilson.



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