In addition to the milk price, the board took the opportunity to further downgrade milk collections with the 2015-16 season now expected to be 6% (previously 5%) lower than the 2014-15 season.
In terms of a forward price view, there has been an uptick in the futures curve in the period post the last GlobalDairyTrade auction, but prices remain well below the $3000 level required to meet the existing guidance.
The other key take-out was the news surrounding interest-free loan to farmers, which had initially been based on production from June through to December.
There was a hope within the rural community that this programme would be extended for the second-half production but perhaps Fonterra took heed of comments from one of the ratings agencies.
Yesterday, Fitch had provided additional clarity to its recent change that meant Fonterra moved from AA- to A.
They described the interest-free loan (as well as the advanced payment schedule) to farmers as something that wouldn’t be representative of a company with an AA- credit profile and so subsequently adjusted.
At 9am the Reserve Bank cut the OCR by 25 points, largely in-line with expectations – but once again the devil is in the detail.
There was a lot of commentary surrounding inflation targets and concerns over the strength of the NZ dollar but given its importance to the local economy there were of course several points covering dairy.
Interestingly, the Reserve Bank’s forecast for dairy is more conservative than Fonterra’s, in that they believe there is a risk that prices will continue to remain weak and they are also wary of the effect on dairy from the likely El Nino weather event.
The currency remained muted post the Fonterra update, but jumped 100 points against the United States dollar post the OCR announcement, with a take-out from the inflation comments suggesting that the Reserve Bank may not need to cut any further.
With a stark contrast in opinions for the outlook of NZ dairy it will be an interesting couple of months to see which track pricing takes from here.
• Mike McIntyre is head of derivatives at First NZ Capital Securities.
