Fonterra has cut its forecast for its 2014/15 milk payments by 37% or NZ$0.70 per kilogram of milk solids to a six-year low of NZ$5.30 per kilogram of milk solids. Given last year’s price of NZ$8.40 per kilogram of milk solids and Fonterra’s collection of 1.6 million kilograms of milk solids, the cut represents a loss for farmers of NZ$5 billion or US$4 billion. As New Zealand’s economy is so dependent upon its dairy sector, the announcement caused the New Zealand dollar to fall to a one-year low of $0.804. Fonterra warns that future price cuts could be called for given the volatility of the global dairy market. High prices last year caused a 2% increase in milk production in Australia, a 4% increase in the EU and the U.S., and an 8% increase in New Zealand while demand from the world’s main dairy importing country of China slowed after buyers stockpiled supplies. China’s inventory of imported milk powder is currently falling, but is still above historically normal levels.
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