It remained to be seen if Fonterra needed to respond with a trim following an early-December board meeting, when the statutory review would be discussed.
However, the milk price forecast was left at $4.60 when Fonterra lifted its earnings guidance two days before the latest GDT.
“The current outlook for the dairy markets means Fonterra’s milk price forecast of $4.60/kg MS is now under considerable pressure,” AgriHQ dairy analyst Susan Kilsby said.
“Buyers are generally well stocked and have ample supply options for dairy commodities.
“Therefore we currently see very little urgency from buyers.
“The drop in milk output from New Zealand in recent months has been matched threefold by the increase in production from Europe.
“Until global milk supplies drop further, prices are expected to remain soft,” Kilsby said.
The AgriHQ prediction was now $4.27, down 44c from the early-November GDT event.
ANZ rural economist Con Williams said his expectation remained between $4.25 and $4.50/kg. He expected the Fonterra board would review its forecast at the December 9 meeting.
“We never bought into the payout going towards $5 this season,” he said, suggesting price recovery would be postponed until mid 2016.
Among the reasons were well-stocked buyers, more sellers with short-shelf-life products, some European milk powder rejected from intervention because of faulty packaging and lacklustre commodities markets.
The BNZ research team took 50c off its dairy forecast earlier in the week, down to $4.50/kg, despite a handful of good news points released by Fonterra on Monday.
The GDT expectation was a return close to the record low price levels of early August, BNZ said.
Westpac economist Anne Bonniface said the latest GDT results forced a milk price downgrade to $4.50.
“Time is not on this season’s milk price side. Our view remains that dairy prices will move higher over 2016.”
Nathan Penny
ASB
If that eventuated, it would mean a second consecutive season of below break-even trading for many dairy farmers.
Together with high debt levels, the Reserve Bank had highlighted it as a risk for the NZ economy.
ASB rural economist Nathan Penny said NZ milk production was falling hard and a big hole in global dairy exports was developing.
However, GDT buyers were not fussed at present because they were well-stocked and looking towards other dairy producers to fill the hole.
“This mismatch may well continue for a period but we see that eventually supply fundamentals will reassert over this weak market sentiment.
“But time is not on this season’s milk price side.
“Our view remains that dairy prices will move higher over 2016.”
The combination of low prices and the drought threat to milk supply put many dairy farmers in an extremely difficult position, Federated Farmers dairy section chairman Andrew Hoggard said.
“Pressure has come on the Fonterra $4.60 payout and dairy farmers are still cutting costs wherever possible,” he said.
The prospects of price recovery this season were receding because markets would be well supplied with products made from the NZ peak milk period.
Furthermore, he was seeing next-season forecasts of milk prices in the mid-$5s, perhaps topped up to $6 by dividends.
