Fonterra set to lower milk price forecast tomorrow - ASB

Fonterra is set to lower its farmgate milk price tomorrow, ASB says.

ASB Bank said it expects Fonterra to cut its farmgate milk price to around $6.50 a kg of milksolids tomorrow, from the current forecast of $6.75/kg.

Fonterra's current forecast was last updated in September.

"At this juncture, we expect a 2017/18 milk price of $6.50/kg, while the market consensus is around $6.30/kg," ASB rural economist Nathan Penny said.

Meanwhile, dairy auction prices consolidated at this morning's GlobalDairyTrade auction.
Dairy prices have weakened since September.

"Both overall and whole milk powder prices have dipped by a little over 9 per cent since then," Penny said.

Meanwhile, a near 5 per cent fall in the New Zealand dollar since September has provided some offset.

"However, the full benefit of the New Zealand dollar is unlikely to be reflected in this season's milk price, however next season's stands to gain more fully," Penny said.

The dairy market outlook has also weakened over the same period.

In particular, global production has improved, Penny said. "Moreover, New Zealand weather and production have recovered somewhat after the very wet spring."

The current dry weather is starting to pose a risk to New Zealand production, economists said.

At this morning's GlobalDairyTrade auction, the price of whole milk powder (WMP) - a major component of Fonterra's milk price forecast - rose by 1.7 per cent to US$2830 a tonne, partly reversing a downward trend.

WMP prices have been falling sharply since September 20, when it traded at US$3122 a tonne. -- Staff Reporter