New Zealand's Fonterra Co-Operative Group Ltd on Thursday lowered its dairy payout forecast to the farmer shareholders, as global demand continues to be sluggish. It will now pay its shareholders NZ$4.15 per kilo of milk solids in the current season as compared to prior forecast of NZ$4.60. If the global prices continue to deteriorate, then the world's largest dairy exporter would be forced to lower its forecast further.
Dairy was seen as the main source for New Zealand's economy, as it represented around 25 percent of its exports. However, the drop in dairy prices by more than half since early 2014; hampered by China's economic slowdown and global oversupply has resulted the statics to change.
The weaker payout is significantly lower than estimated break-even levels of NZ$5.28 further adding pressure on the New Zealand dairy sector.
"Key factors driving dairy demand are declining international oil prices which have weakened the spending power of countries reliant on oil revenues, economic uncertainty in developing economies and a slow recovery of dairy imports into China," - John Wilson, Fonterra Chairman
