Milk price relief for farmers

Fonterra holding its milk price to $6 per kilogram of milk solids for the 2014/15 season is a relief for farmers, says Federated Farmers.

'The milk price hold is good news given there's been widespread speculation about it sliding below the $6 mark, however, we're not out of the woods yet,” says Andrew Hoggard, Federated Farmers Dairy chairperson.

'We still advise farmers to err on the side of caution by budgeting in the mid-$5 payout range,” he says in reaction to today's Fonterra announcement.

Fonterra chairman John Wilson says the decision to maintain the forecast Farmgate milk price reflects the longer term outlook for international prices for dairy.

'Current market views supported by our own forecasting indicate commodity prices improving later this year or in early 2015, with global demand for dairy continuing to grow year on year. While the long-term market fundamentals remain sound, we need to recognise that the current market conditions are difficult and there remains further downside risk.”

He warns there is still volatility which reflects challenges with supply and demand following a good dairy season globally.

'Given these factors, the forecast is our best judgement at this time. It is early in the season, and it is important that our farmers continue exercising caution with their farming business budgets.

'The reality is, we expect to see ongoing volatility, and we will keep our farmers informed as we move forward. If market conditions change our view, we will update them.”

Fonterra will be providing an update on business performance when it announces its annual result on September 24.

Fonterra also announced that it and a leading Chinese infant food manufacturer, Beingmate, intend to form a global partnership that will help meet China's growing demand for infant formula.

Fonterra Chief Executive Theo Spierings says the partnership between the two leading dairy nutrition companies will be a game changer that will provide a direct line into the infant formula market in China, which is the biggest growth story in paediatric nutrition in the world.

Andrew says he believes Fonterra's supplier-shareholders will back this investment of up to $615 million.

'It shows just how international Fonterra's global reach is, something many Kiwis don't understand.”

News that Fonterra is putting $555 million more into its Edendale and Lichfield factories, on top of what's going into Pahiatua and elsewhere, represents a huge vote of confidence in the dairy industry and the provinces, Andrew says.

'It's going to be a great shot in the arm for jobs building this new capacity, let alone the 75 full-time jobs that will be generated plus many more downstream jobs that will flow from it.

'We're more than pleased to see this investment ahead of this season's peak-milk, given last year's buttermilk lakes represented a lost opportunity.

'Fonterra has recognised the need for more capacity with investments worth over half a billion dollars.”

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