Fonterra Co-operative Group Limited has maintained its milk price forecast at $4.60 – but will not continue its interest free support loan to farmers.

Chairman John Wilson says the stable forecast reflects the board and management's view that international prices will continue to improve in the first half of next year.

Photo: File.

However, the board has decided not to continue the Fonterra Co-operative Support loan for milk collected after December 31, but will monitor conditions and assess the need to continue the support if market conditions change later in the season.

'We will provide some $390 million in support to around 75 per cent of our farmers through the most productive half of the season, including the peak,” explains John.

'Farms typically produce 60 per cent of their milk in the first half, with production beginning to taper off from December, so we have provided support when it is needed the most.”

The loan was made available on production from June 1 to 31 December 31 and is 50 cent per kgMS interest-free until May 31, 2017. Repayments are triggered when the Farmgate Milk Price exceeds $6 per kgMS.

John says in making the decision, the board had weighed up the improved farmgate milk price and higher earnings per share forecast since the loan was launched, when the milk price was at $3.85.

Today's announcement to retain the milk price forecast, along with estimated earnings per share range of 45 to 55 cents, amounts to a total available for pay out of $5 to $5.15 kgMS and currently equates to a total forecast cash pay-out of $4.95 to $5.

'We are looking out over the next nine months and basing our forecast on the view that current, unsustainably low prices will continue to impact production levels globally.” says John.

'We support the consensus view in the market that an improvement will take place, but the market remains volatile.

'While there are signs of a recovery, particularly in China, we still need the imbalance between supply and demand to correct.”

John adds the imbalance in supply is starting to reduce, with year-to-date production in the United States up by only one per cent and slowing.

'New Zealand volumes expected to be down by at least six per cent over the current season,” he says. 'In the EU, however, farmers are continuing to push production, currently up one per cent.”

Fonterra is required to consider its forecast farmgate milk price every quarter as a condition of the Dairy Industry Restructuring Act.