Fonterra’s forecast is based on whole milk prices reaching US$3500 a tonne by the second quarter, compared with US$3272 a tonne at the last GlobalDairyTrade (GDT) auction.
«I think we have taken a bullish stand in the past with $4.70 because we expected the milk price to turn around, so we are obviously well on track,» he said.
Much is riding on the next GDT auction on Wednesday, when participants will discover whether prices will rise for the sixth auction in a row.
«We are very excited that sentiment has changed and that the expectation is that milk prices have stabilised, so that’s good for us,» Paravicini said.
«We are happy, as a co-operative, that sentiment has turned around and we can clearly see that the tension between supply and demand has improved, which has delivered a significant increase in prices.
«But it is still a fragile balance, and we will be closely monitoring the next GDT auction to see what is going to happen.»
Fonterra’s reaffirmation of its 2014/15 forecast comes after a 45 per cent increase in whole milk prices since its last update in December.
The co-operative’s chairman, John Wilson, said that although dairy prices had gone up, the increase was not sufficient to lift the forecast, adding there was «significant volatility» in commodity prices.
New Zealand volume is down, with continued uncertainty in milk production because of droughts in Canterbury, Marlborough, Central Otago and North Otago, Wilson said.
Fonterra’s caution was not shared by economists, who still expect a slight upward revision to the forecast because of the explosive run in prices since December.
«It shows that Fonterra is not convinced that prices are going to hold and kick on from this level,» said ASB rural economist Nathan Penny.
«We are more confident that that will happen, hence our view that $5 will be the milk price come the end of the season.»
The 45 per cent price rise since December had come as a big surprise to most.
«They don’t have the confidence to build that in for the rest of the season,» Penny said.
Paravicini said global dairy overproduction was starting to wind back, but questions remained on the demand side, particularly in China.
«The New Zealand drought has obviously had an impact on expectations and the actual output,» he said.
Fonterra’s year-to-date production is still slightly ahead of last year, but daily output is 5 per cent below this time last year.
«If that trend continues, and the drought continues, you will see that impact come through,» he said.
Also on the supply-side, strikes at ports on the west coast of the United States over the last month had disrupted international supply.
In Europe, production growth had slowed, but the effects of Russia’s ban on food imports – mostly dairy – from some Western exporters remained an unwanted complication for the supply/demand mix.
While the supply side was looking more favourable, the demand side was more opaque, particularly in Fonterra’s biggest market, China, where it was yet to see a full turnaround.
Another possible complication may come when Europe’s dairy quota system is dismantled in April, which will remove barriers for production.
In China, demand was still slack but it remained a difficult market to read.
The current forecast is a far cry from last season’s record farmgate milk price of $8.40.
But Fonterra Shareholders’ Council chairman Ian Brown said the forecast would have come as some relief to farmers, particularly as some economists had this year predicted a milk price as low as $4.30 a kilogram.
White gold
• Fonterra holds to its $4.70 per kg of milksolids farmgate milk price forecast.
• Signs of market stabilising after 50 per cent fall last year.
• World dairy production reducing, demand still soft.
• Milk price still below cost of production.
«We are happy, as a co-operative, that sentiment has turned around and we can clearly see that the tension between supply and demand has improved, which has delivered a significant increase in prices.
«But it is still a fragile balance, and we will be closely monitoring the next GDT auction to see what is going to happen.»
Fonterra’s reaffirmation of its 2014/15 forecast comes after a 45 per cent increase in whole milk prices since its last update in December.
The co-operative’s chairman, John Wilson, said that although dairy prices had gone up, the increase was not sufficient to lift the forecast, adding there was «significant volatility» in commodity prices.
New Zealand volume is down, with continued uncertainty in milk production because of droughts in Canterbury, Marlborough, Central Otago and North Otago, Wilson said.
Fonterra’s caution was not shared by economists, who still expect a slight upward revision to the forecast because of the explosive run in prices since December.
«It shows that Fonterra is not convinced that prices are going to hold and kick on from this level,» said ASB rural economist Nathan Penny.
«We are more confident that that will happen, hence our view that $5 will be the milk price come the end of the season.»
The 45 per cent price rise since December had come as a big surprise to most.
«They don’t have the confidence to build that in for the rest of the season,» Penny said.
Paravicini said global dairy overproduction was starting to wind back, but questions remained on the demand side, particularly in China.
«The New Zealand drought has obviously had an impact on expectations and the actual output,» he said.
Fonterra’s year-to-date production is still slightly ahead of last year, but daily output is 5 per cent below this time last year.
«If that trend continues, and the drought continues, you will see that impact come through,» he said.
Also on the supply-side, strikes at ports on the west coast of the United States over the last month had disrupted international supply.
In Europe, production growth had slowed, but the effects of Russia’s ban on food imports – mostly dairy – from some Western exporters remained an unwanted complication for the supply/demand mix.
While the supply side was looking more favourable, the demand side was more opaque, particularly in Fonterra’s biggest market, China, where it was yet to see a full turnaround.
Another possible complication may come when Europe’s dairy quota system is dismantled in April, which will remove barriers for production.
In China, demand was still slack but it remained a difficult market to read.
The current forecast is a far cry from last season’s record farmgate milk price of $8.40.
But Fonterra Shareholders’ Council chairman Ian Brown said the forecast would have come as some relief to farmers, particularly as some economists had this year predicted a milk price as low as $4.30 a kilogram.
White gold
• Fonterra holds to its $4.70 per kg of milksolids farmgate milk price forecast.
• Signs of market stabilising after 50 per cent fall last year.
• World dairy production reducing, demand still soft.
• Milk price still below cost of production.
Source: NZ Herald
