Fonterra further reduces FGMP forecast for 'tough' 2014/15 season


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Fonterra further reduces FGMP forecast for 'tough' 2014/15 season

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Fonterra has cut its farm gate milk price (FGMP) forecast for the 2014/15 season to NZ$4.40 - the fifth such reduction since its May 2014 opener of NZ$7.00.

New Zealand-based Fonterra today announced it had reduced its forecast FGMP for the 2014/15, which ends this week, to NZ$4.40 per kgMS.

With a forecasted dividend range of between NZ$0.20 and NZ$0.30 per share, the cooperative's forecast cash payout stands at between NZ$4.60 and NZ$4.70.

Fonterra is required to consider its FGMP forecast each quarter under the Dairy Industry Restructuring Act (DIRA), the legislation that allowed the merger of New Zealand Cooperative Dairy and Kiwi Cooperative Dairies to form Fonterra in 2001

In May 2014, Fonterra announced an opening forecast FGMP for the 2014/15 season of NZ$7.00. 

It knocked a dollar off its initial estimate in July 2014, then reduced it to NZ$5.30 in September 2014 and NZ$4.70 in December 2014.

Last month, it further reduced its forecast to NZ$4.50 per kgMS.

"Tough season"

Today's FGMP forecast revision "reflects the reality"​ that commodity prices have not improved as expected, Fonterra said.

"World markets are over-supplied with dairy commodities after farmers globally increased production in response to the very good prices paid 12-18 months ago,"​ said John Wilson, chairman, Fonterra.

"This supply imbalance has heightened due to continuing good growing conditions in most dairy producing regions."

"This is a tough season and we will continue to keep our farmers informed as the season draws to a close given the current volatility," ​said Wilson.

Fonterra also announced its opening FGMP forecast for the 2015/16 season, which begins on June 1, of NZ$5.25 per kgMS.

This, the company said, is based on the cooperative's "best view"​ of future global dairy supply and demand.

“We can expect prices to recover going forward, and to see a rebalancing of supply and demand over the season,”​ Wilson continued.

“However it is more difficult this early in the season to determine exactly when this recovery will lead to a sustained price improvement,"​ he added.

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