Fonterra optimistic about global demand

Fonterra chief executive Andrew Ferrier says the company is feeling "reasonably constructive" about dairy prices, and was "quite optimistic" about consumer demand around the world.

"In the front half of the year, prices fell faster than we thought," he told the ABC in Australia. "But we're actually reasonably constructive about the back half of the year.

"We don't think there is going to be as much northern hemisphere supply as originally we have forecast."

This was why the company earlier this month dropped plans to trim its forecast for milk payouts to New Zealand farmers, saying there were "a number of factors signalling a potential improvement in dairy markets later in the year", after a fall of one-quarter in milk prices since April.

Mr Ferrier predicted then that a rise in grain prices, caused in particular by Russia's ban on grain exports, "could lend support to dairy prices". Higher feed costs would slow the recovery in dairy production from a low during the global recession.

Fonterra farmers on this side of the Tasman currently expect a milk payment of $6.60/kg of milksolids, with a dividend of 30c-50c/kg from value-added operations.

Today Mr Ferrier told the ABC: "We call for prices to stay at current levels and even possibly to firm up a touch as we roll through the second half of the southern hemisphere season."

There was a pretty normal year for production in New Zealand, and possibly a lift in Australia, on the back of improved rainfalls: "So I think we're covered, from the perspective of supply in the southern hemisphere.

"Our focus has been primarily what is going to happen with supply in the northern hemisphere ... into the beginning of their spring next year."

United States dairy production was not expected to have big impact on pricing because US farmers were facing higher costs, such as the price of grain feeds.

And global demand had been recovering in the wake of "exceptionally high" prices two years ago,

"If we had stayed at those very high levels again that we were trading in May and June, I think we might have actually seen some demand reductions," he said.

"But the fact that we came off those highs quite quickly, I think, is actually quite constructive for demand in particular in Asia."

Fonterra's extensive consumer businesses across Asia and the Middle East had signalled that after substantial reductions from the highs of 2007-2008, demand was now growing again.

NZ farmers had had an exceptionally high payout, followed by a very low one, and then in the past year, a reasonably high one, signalling that farmers could expect "pretty good" averages, but must plan for volatility.

Earlier this month, Fonterra Australia announced a retrospective payment to Australian dairy farmers worth up to A$7000 ($8935) a farm, and said it would pay farmers an extra 4c/kg for butterfat and an extra 10c/kg for milk protein for the past financial year. In the Riverina this year, it is paying suppliers to its Wagga Wagga factory A$5.60/kg of milksolids.

- NZPA