Fonterra's announcement of a $4.25 milk price for the coming season gives farmers some clarity around what to expect, says the Bay of Plenty Federated Farmers dairy section chairperson.

The predicted price is 35 cents up on the forecast for the current season and Fonterra Chairman John Wilson says it takes into account a range of factors including the high NZD/USD exchange rate, supply volumes from other major dairying regions, current global inventory levels, and the economic outlook of major dairy importers.

Bay of Plenty Federated Farmers dairy section chairperson Steve Bailey says it's a stake in the ground and gives farmers something to work on.

'The fact it's up on the current season means we are not seeing a dramatic swing backwards. We know it is only a prediction and could be plus or minus $2 but it is a conservative figure. We have the banks' views on what the payout will be and now we have Fonterra's view which is helpful.

'I'd like to think we have reached the bottom and are now moving gradually upwards.”

Steve says there are many factors outside of farmers' control including inflation, the strength of the dollar and what's happening on overseas markets so they must focus on the costs they can control on farm.

Fonterra Shareholders' Council chairman Duncan Coull says today's announcement of an opening forecast Milk Price for the 2016/17 season of $4.25 per kg/MS will be a tough number for farmers to hear, but it's the reality of where the market is at present.

'The signal farmers have received from their board today is that while there are encouraging signs and the market should move in a positive direction over the next 12 months it would be slow to do so.

'We as farmers are very well-tuned to volatility and its capacity to fluctuate and will have this front of mind as we work through our budgets for the coming year.

'Fundamental to this is that Fonterra communicates any significant pricing shifts to our Farmers in a timely and transparent manner.”

Duncan says farmers can look to the forecast as an indication that their business is in a strong position, and that their board is aware of the current situation on-farm and has a desire to relieve cash-flow pressure where possible.

'However, the current environment is placing additional stress on us all and as such there is a need for us all to continue stay engaged in our communities and support our friends and neighbours.”

John Wilson says it's important to take into account that this is a forecast for a season which has not even begun.

'As we move through the year, it is vital farmers continue to read the signals being delivered by the market and our co-op, and act appropriately.

'Conditions on farm are very challenging. The strength of the co-operative's balance sheet is enabling us to increase the advance rate in the first half of the new season,” says John.

'We will also bring forward payments for this season's milk. This will provide some assistance with on-farm cashflows.

'We are doing this while remaining within our policies and maintaining our financial discipline. The New Zealand dollar is relatively high and is currently impacting milk prices and our forecasts.

'We are expecting global dairy pricing to gradually improve over the season as farmers globally reduce production in response to ongoing low milk prices, however we continue to urge caution with on-farm budgets.

'We will announce our forecast earnings per share for the 2017 financial year in July as normal. This, along with our forecast Farmgate Milk Price, comprises the total available for payout to our farmers.”

Fonterra chief executive Theo Spierings says the long term fundamentals for global dairy remain positive with demand expected to increase by two to three per cent a year due to the growing world population, increasing middle classes in Asia, urbanisation and favourable demographics.

'In addition to global supply growth slowing, we are seeing imports into major dairy markets improving compared to a year ago. China dairy consumption growth remains positive and its demand for imports has been steady over recent GlobalDairyTrade events.

'We expect these drivers to result in the globally traded market rebalancing.

'We will remain focused on securing the best possible returns for our farmers by converting their milk into high-value products for customers around the world.”

There is no change to the current 2015/16 season forecast Farmgate Milk Price, which is being held at $3.90 per kgMS.