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UPDATE 1-NZ's Fonterra ups 2014 milk price forecast on higher global prices
August 27, 2013 / 4:48 AM / 4 years ago

UPDATE 1-NZ's Fonterra ups 2014 milk price forecast on higher global prices

* Fonterra raises milk price forecast by 4 pct to NZ$7.80

* Co-op chairman cites high global prices for increase

* Milk prices stay near record highs after botulism scare (Adds comment, details)

By Naomi Tajitsu

WELLINGTON, Aug 27 (Reuters) - New Zealand's Fonterra , the world's largest dairy processor, raised its milk price forecast by 4 percent for the 2013/14 season on Tuesday, citing rises in international dairy prices due to demand from emerging countries.

The higher forecast price to be paid to farmers by the dairy co-ooperative, which commands roughly one-third of global dairy exports, reflects continued demand for its products despite a global food scare earlier this month, when some Fonterra products were found to contain a bacteria that can cause botulism.

The company raised its forecast Farmgate Milk Price by 30 cents to NZ$7.80 ($6.14) per kilogram of milk solids - the second hike in less than a month - taking the price near a record NZ$7.90 paid for the 2010/11 season.

With the addition of a 32-cent forecast dividend, this would result in a final cash payout price to its farmer-shareholders of NZ$8.12, a jump of around 33 percent from a forecast payout of NZ$6.12 for the 2012/13 year ended in July.

"Current market views support commodity prices remaining at historically high levels longer than previously forecasted," Fonterra Chairman John Wilson said in a statement.

"The two most recent Global Dairy Trade events have seen prices hold, and significant volumes sold. These factors have contributed to our updated forecast."

The increased forecast comes after Fonterra announced earlier this month that it had sold products containing contaminated whey protein powder to some of the world's biggest food and beverage manufacturers.

The admission prompted the removal of infant milk formula, sports drinks and other products from supermarket shelves in around nine countries, including China.

Other countries have restricted imports of Fonterra products in light of the contamination issue.

Despite this, prices at the company's fortnightly Global Dairy Trade auctions, which are considered the global benchmark, have remained near lifetime highs, suggesting that overall, global food and beverage multinational continue to buy Fonterra products.

"Wider dairy markets haven't been spooked," BNZ economist Doug Steel said.

"Prices are roughly where they were pre-contamination scare and this is really a reflection of those very good international prices coming through to the forecast for Farmgate prices."

He added that the latest forecast suggested an additional NZ$500 million in revenue to New Zealand's dairy sector. This would contribute an extra NZ$4 billion, or nearly 2 percent, to the country's economy compared with last year.

New Zealand relies on diary exports for about a quarter of its NZ$46 billion in annual export earnings. ($1 = 1.2711 New Zealand dollars) (Reporting by Naomi Tajitsu; Editing by Stephen Coates and Chris Gallagher)

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