The dairy co-op reduced its milk volume forecast for the 2014-15 season to 1532 million kilograms of milk solids, down 3.3 per cent from the total collected last season.
Fonterra director of co-operative affairs Miles Hurrell said daily production was now 6.1 per cent lower than at the same time last year.
«In the first half of the season, excellent pasture conditions resulted in milk volumes being higher than the previous season,» he said.
«The situation has changed significantly over the course of this month.»
However, TD Securities head of Asia-Pacific research Annette Beacher said it was not all bad news.
«Taking a step back, reducing volume in the face of lower prices makes merely good business sense,» she said.
«The lower cost farms will be able to benefit from the likely continued rebound in milk prices.»
ASB rural economist Nathan Penny said if Fonterra’s forecast was accurate, it would be a major shift.
«Undoubtedly in that scenario, there would be a spike in prices,» he said.
But with Fonterra having already sold two thirds of this season’s production, the benefit of any price recovery would mostly lag until the start of next season, Penny said.
Weak demand and global events affecting the supply balance have sent dairy prices in a downward spiral since February last year, with tentative signs of recovery in recent auctions.
The downturn has prompted Fonterra to repeatedly slash its forecast farm-gate milk price to $4.70/kg, compared to the previous season’s record $8.40/kg.
That bumper return was in turn influenced by drought conditions curtailing milk production across the North Island.
Federated Farmers dairy industry group chair Andrew Hoggard said he was not sure whether milk prices would experience the same rebound.
«But if it is a case of demand and supply … you should see a shift to a better price, unless demand gets hurt again by some other world event,» he said.
The regions worst affected and most vulnerable to full-blown drought are North Canterbury and South Otago.
Hoggard, who farms a dairy herd in the Manawatu, said there had been no substantial rain since Christmas and there were still few clouds in the sky.
«The downgrade will be in line with what we’re looking at on the farm here,» he said.
«If we get a normal February which is dry as well, production’s going to be well and truly back.»
Hoggard said some farmers would be making early culls, starting to dry animals off, and feeding out silage.
Hurrell said there also appeared to be a reduction in feed supplements, as the economics did not support their widespread use this season.
Fonterra confirmed that it could meet all its current sales commitments, but planned to reduce the quantity of product offered through the GlobalDairyTrade auction and direct sales.
Source: Stuff
