The Bank of New Zealand has lowered its 2015/16 milk price forecast for Fonterra to $3.80 a kg of milksolids from its previous forecast of $4.30, but says it expects dairy prices to recover late this year.
The co-operative's farmgate milk price is currently at $5.25 a kg but the Fonterra board is expected to review the forecast when it meets on August 7. The milk price for the year just passed was $4.40 a kg, compared with Dairy NZ's estimate of a breakeven of $5.70.
As a rule of thumb, a $1 per kg drop in the milk price equates to approximately $2 billion less income for dairy farmers.
BNZ said that while the lower New Zealand dollar was providing broad support, international dairy prices had been under severe downward pressure over recent months as ongoing supply expansion, soft demand and Russia's trade embargo had weighed down the market.
"We are of the view that prices remain weak near term, but will recover over the following 12 months," the bank said.