Fonterra Co-operative Group Limited (ASX:FSF) has maintained its milk volume forecast for the 2015-16 season at 1,589 million km MS, which is in the range of 2-3 per cent lower than the amount collected last season.
Fonterra is required under the Dairy Industry Restructuring Act to update its current season forecast milk volumes by early September.
Group Director C0-opertaive Affairs Miles Hurrell said that although Fonterra had forecast a 2-3 per cent decline in volumes, there was evidence that farmers were pulling back productions, which could lead to further downward revision of forecast volumes as we move through the season.
“Farmers are responding to the lower forecast Farmgate Milk Price by returning to more traditional farming practices. They are reducing the use of feed supplements, and lowering stocking rates per hectares as they concentrate on utilising pasture.”
“Market data from several independent sources show that cows are being culled at higher rates than last season while many of our farmers are also providing early advice that they are expecting significant year on year volume reductions.”
“In addition, currently our dairy ilk collection average is lower than for the same period last year.”
“However, it is still early in the season, and any forecast at this point is very dependent on weather conditions, which have so far been poor for production.”
“Given these variable facts, we have decided to maintain our current forecast milk volume at this very early stage of the season.”
FCF’s share price has declined over 21 per cent over the last twelve months due to falling dairy prices. Following disappointing half year results in March and weak forecasts announced in May, the company’s share price continues to fall. Following today’s confirmation of weak forecasts, the company may experience further declines, however most of the forecasts have already been factored into the price.
Author: Ben Visser
Sep 10, 2015
Ben is a Wise-owl equity analyst focusing on ASX blue-chips stocks. Ben has a Bachelor of Business in Finance majoring in property valuations and management. In his role at Wise-owl Ben conducts in-depth fundamental and technical analysis which helps him to find profitable investment opportunities on the ASX and abroad.