Dairy auction unlikely to hit Fonterra's forecast

Fonterra's 2017/18 milk price is expected to remain intact. Picture/Supplied.

Futures market action suggests dairy prices may ease at Wednesday's GlobalDairyTrade auction — but not by enough to affect Fonterra's milk price forecast.

Derivatives specialist OM Financial said the discount in whole milk powder futures since the last auction suggested a fall was imminent.

However, ASB rural economist Nathan Penny said slight weakness in the market was not enough to change Fonterra's forecast.

If anything, he said an upward revision was possible to Fonterra's current forecast of $6.40/kg, perhaps by 10c or more, given the market's recovery since September, when the forecast was cut from $6.75/kg.

"The market is looking a little soft but we are starting to get to the point where it doesn't really impact on things too much," Penny said.

The season ends on May 31 and Fonterra will have already sold the bulk of its production.

Fonterra's first-half result is also due on Wednesday.

While farmers face the prospect of a reduced dividend as the result of the Danone legal settlement, Penny said farmers would be happy with the current milk price, which makes up about 96 per cent of their income.

In data out today, the Dairy Companies Association said milk production fell 3.9 per cent on a milksolids basis in February. Season-to-date production fell 1.2 per cent and production for the 12 months to February was up 0.5 per cent.