An nearly ten percent fall in global dairy prices since August meant Fonterra's lower forecast payout was largely flagged to farmers and markets, analysts said.
"What is driving this forecast is despite demand for dairy remaining strong, particularly in China, other parts of Asia and Latin America, we are seeing strong production out of Europe and continued high levels of European Union intervention stockpiles of skim milk powder".
Last week, the company flagged that its arbitration with French company Danone SA had an impact on its earnings guidance for the season but none on the farmgate milk price.
Fonterra farmers would receive equal or higher payments for their milk over the period than they were scheduled under the previous $6.75 milk price, he said.
Fonterra also cut its forecast New Zealand milk collection for this season, by 1 per cent to 10525 million kilograms of milk solids from the 10540 million kilograms it projected in October, which itself was a downgrade.
While it had erred on the side of caution with its FMP forecast, it had been more confident with its payment schedule to farmers.
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That reflected "ongoing challenging weather conditions". What is driving this forecast is that despite demand for dairy remaining strong, particularly in China, other parts of Asia and Latin America, we are seeing strong production out of Europe and continued high levels of European Union intervention stockpiles of skim milk powder, says Fonterra.
Global demand was firm and the global butter shortage ongoing.
Chief executive Theo Spierings updated the market on Fonterra's first-quarter results.
Nearest dated contracts fell the most - prices for butter to ship in January dropped 24.3 per cent, according to Castleton. However, when it was compared with the same period previous year, it was down from 12.1% to 8.1%, a fall of 33%, mainly due to the rise in commodity prices.
Revenue in the first quarter rose 4 per cent to $4 billion although sales volumes dropped 20 per cent to 3.9 billion liquid milk equivalent and said its gross margin fell to 16.7 per cent.
"The lower volume on offer appears to have provided some support as almost all of this product was sold", Amy Castleton, AgriHQ dairy analyst, said in a note. The co-operative expected performance to be weighted to the second half of the year and remained confident of its full-year forecasts following revisions after the recent Danone announcements.
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