Fonterra holds milk price steady

Fonterra expects dairy prices to recover in the first half of next year. Photo / David Kerr

Fonterra has decided to maintain its farmgate milk price at $4.60 per kg of milksolids, but said it would discontinue its farmer support scheme, which will finish this month.

The forecast follows on from last year's farmgate milk price of $4.40 a kg, which compares with DairyNZ's break-even estimate of $5.30 a kg.

In a statement, Fonterra said that along with the November announced estimated earnings per share range of 45-55 cents, this amounted to a total available for payout of $5.05-$5.15 kg, and would currently equate to a total forecast cash payout for 2015/6 of $4.95-$5.00 a kg.

Chairman John Wilson said the forecast reflected the board and management's view that international prices would continue to improve in the first half of next year.

"We are looking out over the next nine months and basing our forecast on the view that current, unsustainably low prices will continue to impact production levels globally," he said.

"We support the consensus view in the market that an improvement will take place, but the market remains volatile," he said.

"While there are signs of a recovery, particularly in China, we still need the imbalance between supply and demand to correct," Wilson said.

The board had decided not to continue the co-operative support loan for milk collected after December 31, but would monitor conditions and assess the need to continue the support if market conditions changed later in the season.

Fonterra said it would provide $390 million in support to around 75 per cent of its farmers through the most productive half of the season, including the peak. Farms typically produce 60 per cent of their milk in the first half, with production beginning to taper off from December.

In October ratings agency Fitch said it had cut its rating for Fonterra by two notches to A from AA minus because of the support package.

"Fonterra's actions to support the financial stability of its farmer shareholders in a period of declining dairy prices, and to the detriment of its own financial strength, highlighted its vulnerability to adverse business conditions," Fitch said in a report.