Fonterra Cooperative Group's Australian business has raised its average farmgate milk price to A$5.10 (NZD$5.44) per kilogram of milk solids and increased its forecast closing price due to strengthening global dairy prices.

In a statement, the Auckland-based dairy cooperative said it had increased its forecast closing price for the 2016/2017 season to A$5.20/kgMS. It had announced an opening price of A$4.75/kgMS in June, rising to A$5/kgMS by the end of the season. That compares with an A$5/kgMS payment for the 2015/16 season.

"Although the global market remains volatile, since the beginning of the season global milk supply has continued to decline significantly while demand has remained relatively stable," Fonterra Australia managing director Ren Dedoncker said. "We have seen positive movement in GlobalDairyTrade auction prices through August and September, with a 26 per cent increase in the GDT price index since July, although the strong Australian dollar has offset some of the commodity market gains."

Australia's dominant milk processor Murray Goulburn today lifted its payout to A$4.95 per kilogram of milk solids for the full season. In June, it announced an opening forecast of a net A$4.31/kgMS, which it expected to rise to A$4.80/kgMS by the end of the season. Fonterra is obliged to at least match Murray Goulburn's price under its Bonlac supply agreement.


Dedoncker said Fonterra has made "strong progress" in turning around its Australian business, which has underperformed for several years in an environment of fierce competition for milk supply and over-capacity in dairy production. It has started its joint venture with Chinese infant formula company Beingmate and begun producing dairy nutritionals for Bellamy's Organics as well as expanding its cheese and butter capacity.

"Winning in cheese and nutritionals is core to our strategy to become Fonterra's global ingredients hub for cheese, whey and nutritionals, complementing our consumer and foodservice businesses," he said. "This is helping us move our farmers' milk up the value chain into products generating higher returns, which ultimately flows back to the farmgate."

Individual suppliers' milk prices will vary across regions, depending on the individual farm's milk profile, regional production factors, milk quality and farm management systems, the company said.

Units of the Fonterra Shareholders' Fund last traded at $5.90 and have slid 1.5 per cent this year.