The new milk forecast is $6-$6.30/kg milksolids, still optimistic compared with most dairy market analysts who have tended towards $6.
Chairman John Monaghan said global milk supply remains stronger than demand, as indicated by the Global Dairy Trade index that had lost 17% since June, including minus 15% for whole milk powder and minus 30% for butter.
“Since our October milk price update, production from Europe has flattened off the back of dry weather and rising feed costs,” he said.
Milk volumes in the United States were forecast to be up 1% for the year.
“We are maintaining our forecast collections at 1550 million kg MS, up 3% for the year.
“NIWA is saying it’s likely we will see an abnormal El Nino weather pattern over summer and this could impact our farmers’ milk production.
“Demand from China and Asia remains strong, however, geopolitical disruption is impacting demand from countries that traditionally buy a lot of fat products from us.
“The revised forecast range assumes dairy prices will firm across the balance of the season and this is consistent with the views of other market commentators.”
He recommended farmers remain cautious in their budgets and the advance rate schedule had been reset off a milk price of $6.15.
Monaghan also confirmed the New Zealand ice cream business Tip Top is one of the asset sale options.
“While performing well, Tip Top is our only ice cream business and has reached maturity as an investment for us.
“To take it to its next phase successfully will require a level of investment beyond what we are willing to make.
“We are still some months off from completing the full portfolio review of assets, investments and partnerships.”
Fonterra has also agreed in principle to buy back the Darnum infant formula plant in Victoria from the joint venture with Beingmate.
One target of the portfolio review is an $800m reduction in debt by July 31, which will need improved performance and divestment of assets, Monaghan said.
