Fonterra has announced a lower opening price for its Australian farmer suppliers in the upcoming season, but says it expects prices to recover over the year ahead.
The Auckland-based dairy co-operative announced an opening farmgate milk price of $A4.75 per kilogram of milk solids for the 2016/17 season, rising to $A5 by the end of the season.
That compares with a $A5 payment for the 2015/16 season.
Fonterra's forecast is ahead of Australia's dominant milk processor Murray Goulburn which this week announced an opening forecast of a net $A4.31 for the 2016/17 season, which it expects to rise to $A4.80 by the end of the season.
Fonterra is obliged to at least match Murray Goulburn's price under its Bonlac supply agreement.
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Dairy companies have been cutting payments to their farmer suppliers as they grapple with weak dairy prices which have remained lower for longer than expected as global supply continues to exceed demand.
Fonterra said its forecast is based on the Australian dollar holding at around 74 US cents and reflects the revenue it expects to earn on products it manufactures.
"Our farmgate milk price in Australia is also impacted by global dairy markets given our mix of domestic and export sales," Fonterra's Judith Swales said.
"While we are still seeing an imbalance between global milk supply and demand there are signs in key milk producing areas of a slowdown in production and increased imports into key markets such as China, Asia and Latin America. This supports our view of a recovery in global prices as we move through the season."
Individual suppliers' milk prices will vary across regions, depending on the individual farm's milk profile, regional production factors, milk quality and farm management systems, the company said.
