FXStreet (Delhi) – Con Williams, Rural Economist at ANZ, notes that the Fonterra updated its milk price forecast to $4.15/kg MS and this is a reduction of $0.45/kg MS from the previous forecast of $4.60/kg MS.
Key Quotes
“The forecast dividend range (paid out) was left unchanged at $0.35- $0.40/share. However, dividend upside was flagged with the statements that it was “on track to generate improved dividend returns” and “we will look at the best way to help our farmers’ cash flows, underpinned by the expected improvement in dividend returns”. We await the half year results for 2015/16 for further clarity.
The forecast reduction is in-line with expectations and the earlier announced forecast reductions from competitors Open Country Dairy and Westland. All these forecasts imply that it is going to remain tough for international dairy prices over the first half of 2016. Current market dynamic’s look very tough, especially milk supply which remains high offshore and is likely to improve in New Zealand. This combined with lower seasonal demand from China means it could be a tough couple of months for GDT auction prices.
Year-to-date New Zealand milk supply is tracking 2.6% behind the same period last year. This is impressive given the headwinds to production: the slow start to the season, a near 4% decline in the number of cows in-milk and challenging financial conditions for the sector. It implies a very strong productivity performance (i.e. high per head performance); especially given the cost cutting and revamp of production systems that is taking place. Improvements which are helping to lower industry breakevens.”
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