NZ’s Fonterra lifts 2017-18 global milk price forecast following solid demand, difficult production year

New Zealand’s Fonterra has lifted its milk price forecast for 2017-18 (+0.15/kg MS) but marked down its dividend forecast (-USD0.10/share) and investment in Beingmate (-USD405 million to USD244 million; initial investment circa USD755 million).

The lift in the 2017-18 milk price forecast to USD6.55/kg MS with the season near 86 percent sold was the major bright spot. This will be the fourth-highest result on record and helps underpin farm-gate earnings despite a difficult production year for most farmers.

A major talking point will be the USD405 million impairment of Fonterra’s Beingmate investment. The total write-down from the original investment is now USD511 million, which equates to USD0.32/share.

"The recent downward pressure on NZD and milk powder prices holding at the top of recent ranges create some upside risk, but we suspect international prices could be under a little bit of pressure into May on improved milk flow. The demand side of most dairy markets looks strong, meaning any downside should be fairly limited," ANZ Research commented in its latest report.

Meanwhile, autumn production conditions now look favorable, which will extend days in milk for most farmers, boosting end-of-season production. Still, overall NZ production is expected to finish down around 1.5 percent y/y, with large variations by region depending on the bite taken out of production during the hot and humid December/January period.

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