Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, raised its forecast milk payout for the second time in a month, responding to signs a three-year global price slump is coming to an end.
Auckland-based Fonterra on Wednesday lifted its estimated farmgate milk price by 50 NZ cents to NZ$5.25 ($3.84) a kilogram of milksolids for the season ending May 31, 2017. The company maintained an earnings-per-share forecast of 50-60 NZ cents, taking the total payout available to farmers to between NZ$5.75 and NZ$5.85 a kilogram.
New Zealand farmers need income of around NZ$5.05 a kilogram to break even, according to industry body DairyNZ -- a level that hasn’t been achieved since the record NZ$8.40 milk price in the 2013-14 season. A recovery in the value of dairy products, New Zealand’s biggest export, may bolster the nation’s economic growth and make the central bank wary of cutting interest rates much further to boost weak inflation.
Fonterra’s announcement follows sharp gains in global dairy prices at the fortnightly GlobalDairyTrade auctions over the past two months.
“Milk production in key dairying regions globally is reducing in response to low milk prices,” Chairman John Wilson said in today’s statement. “While we have seen some improvement in GDT auction prices recently, the high NZD/USD exchange rate is offsetting some of these gains.”
The New Zealand dollar was little changed after Fonterra’s statement, buying 73.13 U.S. cents at 9:08 a.m. in Wellington. The currency has climbed 16 percent the past year.
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