New Zealand bonds close lower as Fonterra raises milk price forecast

The New Zealand government bonds closed lower Thursday after the world's biggest dairy exporter increased 2016/2017 milk price forecast by 50 cents to 4.75 NZ dollars.

The yield on the benchmark 10-year bond increased 1 basis point to 2.285 percent and the yield on 7-year note also ended 1 basis point higher at 1.970 percent and the yield on short-term 2-year note bounced 2-1/2 basis points to 1.810 percent.

Fonterra, the world's biggest dairy exporter in its latest press release mentioned that they have increased its 2016/17 forecast Farmgate Milk Price by 50 cents to 4.75 NZ dollars per kgMS. When combined with the forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total payout available to farmers in the current season is forecast to be 5.25 to 5.35 NZ dollars before retentions.

Moreover, Chairman John Wilson said that current global milk prices remain at unrealistically low levels, but have started to improve as global demand and supply continue to rebalance.

“Prices have increased on GlobalDairyTrade but the increasing NZD/USD exchange rate continues to offset some of these gains. We expect the dairy market to be volatile over the coming months and will continue to keep our forecast updated for our farmers as we move into the season,” he said in the press release.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 16.98 points to 7,427.28.