Fonterra Chairman John Mon-aghan says the co-op was reacting to stronger milk supply signals coming from some of the world’s key dairy producing regions.
“Over the past quarter, we have seen increased milk supply out of markets including Europe, the United States and Argentina,” he says in a statement.
“These regions have a big influence on the supply and demand balance and therefore global prices. For example, the one per cent increase in US milk production represents just under 100 million litres of extra milk.”
Monaghan says that demand for whole milk powder and dairy fats is showing signs of slowing in some parts of Asia, Africa and the Middle East.
Fonterra interim chief executive Miles Hurrell says it is important to give farmers a realistic assessment of the market.
“A drop in the new season milk price forecast will be frustrating to our farmers, but it’s important we give them the facts, so they can make informed decisions in their farming businesses,” Hurrell says.
Federated Farmers dairy section chairman Chris Lewis says he has cautioned about processors over promising and under delivering.
“Farmers and bankers rely on this information when setting their budgets,” he says.
Meantime, the Reserve Bank’s latest six-monthly financial stability report says dairy funding costs remain key risks.
The bank says low dairy prices in the 2014/15 and 2015/16 seasons caused the average dairy farm to make losses.
The bank warns that parts of the dairy sector remain under significant pressure and some farms will struggle to be profitable, especially the 20 per cent of dairy farms that account for 50 per cent of dairy debt.
