Revised dairy forecast good news

Dairy farmers have received some brighter news from Fonterra. Photo / Christine O'Connor.

Otago dairy farmers have received some good news with Fonterra bumping up its farm-gate milk price forecast by 25c for the 2018 season to $6.75.

The co-operative also announced a forecast earnings per share range of 45c to 55c, making the forecast total available payout to farmers in the 2017-18 season $7.20 to $7.30 before retentions.

In a statement, chairman John Wilson said the revised forecast reflected the ongoing rebalancing of supply and demand in global dairy markets.

With growing confidence on farms across the country and global demand for dairy strengthening, the signs were for a good start to the season for farmers, although some had experienced a challenging period of very wet conditions, Mr Wilson said.

The increased forecast would be welcome news to farmers as they continued to invest in their businesses following an improved 2016-17 season, with the usual reminder to budget cautiously, especially in the early part of the season, he said.

A turnaround in feed prices coincided with the dairy sector recovery, evident in prices continuing to lift at a steady pace.ASB's latest Commodities Weekly report said both feed barley and feed wheat prices had lifted  about 5% over the past month.

World grain prices had also firmed recently. Wheat and corn prices had lifted by 9% and 12% respectively over the past month.

All up, ASB said the feed price outlook was strong and further price rises were expected. In particular, further strengthening in the dairy sector would lead to increases in feed demand.

Similarly, demand from other sectors, such as poultry and dry stock, was also likely to remain firm.

● Earlier this week, Australia's biggest dairy processor Murray Goulburn cut its forecast milk intake for the 2017-18 financial year, but said the reduction had not affected the price the company expected to pay farmers for their milk.

"At this stage, Murray Goulburn's total FY18 (2017-18 full-year) milk intake is expected to be approximately 2.3 billion litres, prior to any significant upside or downside from seasonal impact," Murray Goulburn said in a trading update.

In June, Murray Goulburn said it expected a milk intake of about 2.5 billion litres for 2017-18.

But Murray Goulburn said its opening farm-gate milk price for the current season remained at $5.20 and the price range for the whole year was still forecast to be between $5.20 and $5.50.

Murray Goulburn said the the impact of the reduced milk intake had been offset by cost and business improvements.

But the company warned if the Australian dollar kept rising in value over the full financial year, the prospect of achieving the top of the price range, $5.50, might become uncertain.

Murray Goulburn has lost some of its dairy farmer suppliers since the company unexpectedly slashed the farm-gate milk price in April 2016, causing chaos in the dairy sector.

The company initially set an opening farm-gate milk price of $4.70 for the 2017-18 season - much lower than other dairy processors - but just weeks later lifted the price to $5.20.

Murray Goulburn at the time said the increase was needed in the current competitive environment to maintain milk supply and provide improved cash flow for suppliers.
Meanwhile, Murray Goulburn has agreed to sell its Kiewa Country brand and some associated assets to a local business.

Murray Goulburn in May said it would close its manufacturing facilities at Kiewa, in northwest Victoria, along with plants at Edith Creek, in Tasmania and Rochester, in Victoria.

- Additional reporting AAP

- Otago Daily Times