Fonterra to reveal dairy price expectations

Fonterra's outlook for the future will be in the spotlight when the dairy giant posts its annual result tomorrow, says BNZ economist Doug Steel.

Fonterra last month reaffirmed its forecast payout before retentions for the 2010/11 season of $6.90-$7.10 a kilogram of milksolids.

A $7.10 payout based on stable production levels could be worth about $9.1 billion.

Most people were expecting a reasonable bounce-back in New Zealand production from the drought and early season supply seemed, in parts, to be going well, Steel said.

"But there's always a question mark on the weather and certainly the snow down south has put a bit of a dampener on that in the short term."

Risks remained that into summer and next year the La Nina weather pattern could dry parts of the West and North.

"Throw in the South Canterbury Finance collapse and the earthquake, there's plenty of things to try to navigate your way through," he said.

Steel was not expecting a change to the payout forecast for 2010/11 and said there was a feeling that supply and demand was close to balance.

"In the last couple of months things have been panning out as we thought so I guess most interest will be in do they change the payout for the current season, as much as there is any interest in the wash-up for the season ended," he said.

"It's not clear to me that there's upward or downward pressure on prices at the moment in an international sense and likewise as you bring them back into New Zealand dollars with the currency relatively stable."

Milk production out of the United States had increased, with August up 2.7 per cent on the previous year.

"Good for them, probably not so good for the world market but it's pretty much on expectation so it shouldn't cause too much price volatility."

The $6.90-$7.10 a kilogram of milksolids forecast seemed a reasonable pick given what was known of the world "but as always subject to the next wobble or sprint in the world economy".

Fonterra chief executive Andrew Ferrier in August said consistent demand through the year, particularly from Asia, had helped the co-operative cross the 2 million-tonne milestone, while chairman Sir Henry van der Heyden said a number of factors signalled a potential improvement in international prices.

Fonterra reached an export record of 2.1 million tonnes of milk products for the year ended July 31.

Since that news the average price for a basket of products in the past two Fonterra online auctions increased by 16.9 per cent and then 1.9 per cent.

Federated Farmers president Don Nicolson said the snow in Southland was the most he had seen in September.

"While our dairy colleagues in Southland have also taken a hit, it's the region's sheep farmers that are bearing the full force of this storm," Nicolson said.

A Fonterra spokesman this week said some farmers had to spill milk into effluent ponds over the weekend but that the company was back to normal collection. Fonterra would pay farmers for the estimated amount of milk spilt but would not say how many were involved or the potential cost.