The revised forecast is $6.25-$6.50/kg MS, reduced from $6.75 and down about 10% from the season-opening prediction of $7.
Chief executive Miles Hurrell said the co-operative intends to give the best possible price signals to its farmer suppliers and in the complex world dairy markets an exact milk price is very difficult to pinpoint early in the season.
The advance rate will be based on $6.25 and farmers should budget with ongoing caution, he said.
Hurrell said strong dairy production is evident in Europe, the United States and Argentina.
While hot weather in Europe has slowed the region’s production growth, it is still tracking ahead of last year.
US milk production is up slightly and Argentina is up 6.8%.
New Zealand’s season started strongly so Fonterra has lifted its milk collection forecast to 1550m kg, up 2.9% on last season.
Should that increase eventuate, with more than half of the season yet to run, it will be the first sizable lift in Fonterra’s NZ production for four years.
Global demand is simply not matching supply increases, Hurrell said.
“At recent Global Dairy Trade events prices for all products that make up the milk price have fallen.
“Demand for while milk powder, in particular, continues to grow in China and it remains strong across southeast Asia but it simply isn’t matching current levels of supply.”
The anticipated rise in NZ milk production after three seasons of nil increase is putting downward pressure on world dairy prices.
Fonterra’s added caution in the milk price forecast does also seem to be a reaction to its loss-making 2018 annual results and Hurrell’s intention to make more realistic forecasts and deliver on them.
“I know how hard it is for farmers when the forecast drops but it’s important they have the most up-to-date picture so they can make the best decisions for their farming businesses,” he said.
ASB chief economist Nick Tuffley said Fonterra’s previous forecasts for the season looked to be on the high side and a downward revision was expected.
“The forecast range is now set at a more realistic level.
“Furthermore, the shift to using a range rather than a point estimate is an acknowledgment of the uncertainties to the outlook.”
For the time being ASB will stick to its $6.50 forecast but with a downside risk.
