Improving dairy markets has resulted in Fonterra raising its milk price forecast by NZ $0.75c/kg of milk solids (MS) to NZ$6/kg MS, or 29.9c/litre in an Irish equivalent. This brings the New Zealand farmgate price in line with what many Irish co-ops are paying.

On top of that price, Fonterra said it is forecasting a 50c to 60c earning per share.

Fonterra chairman John Wilson said the slowdown in production in both Europe and Australia is contributing to a reduced supply and, therefore, increased prices paid to its farmers.

“We’ve seen falling production in the major exporting regions, particularly Europe and Australia, and an unprecedented decline in New Zealand milk supply due to wetter than normal spring conditions across most regions. On balance, demand continues to be firm. As a result, there has been a steady improvement in global dairy commodity prices and this is reflected in the improved forecast,” Wilson said.

Financial performance

Meanwhile, the dairy giant has announced that its first quarter revenue is up 6% on the same period last year and stands at NZ$3.8bn (€2.5bn).

'Solid profits'

Kevin Cooney, who heads up the Agri Capital division of New Zealand bank ASB, said the forecast price increase is positive for all aspects of the sector.

"Fonterra’s announcement for the financial year 2017 (FY17) milk price is a huge positive for the New Zealand industry and reinforces the recent lift in sentiment amongst New Zealand dairy farmers, particularly with advance payments to reflect this price lift from December.

"It also coincides nicely with farmers having structurally reduced costs on-farm so should translate to solid profits when just three months ago it was unclear if FY17 would be another year of low milk prices. It's a positive, too, for our industry value chain and regional communities who depend on a strong dairy sector," Cooney said.

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