(file image) Photo: 123rf
Fonterra has slashed its milk payout forecast for the coming season by 12 percent because of reduced Chinese demand.
The co-operative's new forecast range is $6.25 - $7.75 a kilo of milk solids (kgMS), with a midpoint of $7 per kgMS from $7.25 - $8.75 per kgMS, with a midpoint of $8 per kgMS.
Chief executive Miles Hurrell said its May forecast was based on an expectation that Chinese demand would improve over the medium term.
"Since then, overall Global Dairy Trade (GDT) whole milk powder prices have fallen by 12 percent, and China's share of whole milk powder volumes on GDT events has tracked below average levels.
"This reflects a current surplus of fresh milk in China, resulting in elevated levels of local production of whole milk powder, and reducing near-term whole milk powder import requirements."
At this week's global dairy auction prices fell 4.3 percent to a two-and-a-half year low, and wholemilk powder prices, which heavily influence the local payout, tumbled 8 percent to their lowest level since June 2020.
Hurrell, however, was still optimistic about the medium term outlook.
"The medium to long term outlook for dairy, in particular New Zealand dairy, looks positive with milk production from key exporting regions flat compared to last year."