Fonterra to update forecast for 2016, 2017

There is a good chance that Fonterra would stick with its current forecast of $4.25 next week, despite market price declines since then. Photo / Bloomberg

Fonterra will update its farmgate milk price and reveal earnings per share forecasts for 2016/17 on Monday.

The moves will give farmers guidance on the co-operative's total payout for the year and offer an assessment of the status of global dairy markets.

In May, the co-op's opening farmgate milk price for the 2016/17 year was $4.25 per kg of milk solids, up 35c from the previous season's.

Since then, GlobalDairyTrade prices for wholemilk powder have dropped by US$126 a tonne to US$2079 but futures market pricing in recent days has indicated a rise. Wholemilk power prices need to return to US$3000 a tonne to put farmers back in black.

Private forecasts vary widely.

ANZ rural economist Con Williams said there was a good chance that Fonterra would stick with its current forecast of $4.25 next week, despite market price declines since then.

World overproduction and slack demand have driven global prices down, and DairyNZ said farmgate prices need to reach $5.25 kg for farmers to break even.

While prices have generally remained low, some positives have started to emerge such as production falls in New Zealand, Australia, Argentina and Brazil. There have also been signs that production is coming off the boil in the European Union.

AgriHQ dairy analyst Susan Kilsby's farmgate forecast sits at $4.48 per kg but she does not expect Fonterra to change its price next week.

Fonterra's financial year ends on Sunday.