Fonterra lowers NZ milk collection forecast

Fonterra Cooperative Group expects to collect 4 per cent less milk from its New Zealand suppliers this season as dry weather hurts grass growth and lowers milk production.

Auckland-based Fonterra revised its forecast for its New Zealand milk collection for the current 2017/18 season to 1,480 million kilograms of milk solids, down from its November forecast of 1,525 million kgMS and 4 per cent lower than its milk collection in the 2016/17 season, it said in a December 29 statement.

Fonterra, the world's largest milk processor, said wet conditions experienced by farmers at the beginning of spring improved from late October and into November, but recent dry weather is continuing to impact soil moisture and pasture quality right across the country.

Dry conditions are expected to continue, and even if the rain forecast for early in 2018 eventuates, it will not be enough to bring production back to previously anticipated levels, it said.

The price of whole milk powder rallied 4.2 per cent to US$2,886 ($4,060) a tonne in the Global Dairy Trade auction overnight, after Fonterra said it has begun to take volumes of whole milk powder off the auction platform in response to the lower milk supply and will carefully manage sales on and off GDT for the rest of the season as a result of the current weather conditions.

Some 13,255 tonnes of whole milk powder was offered at the GDT auction, 19 per cent less than at the previous GDT ahead of Christmas.

Fonterra advised last week that it plans to reduce the volume of whole milk powder that it plans to sell on GDT in 2018 by 10,011 tonnes, or 1.6 per cent, from its previous forecast.

Units in the Fonterra Shareholders Fund, which gives investors exposure to Fonterra's earnings, last traded at $6.41, having gained 6.8 per cent over the past year.