WELLINGTON, March 8 (Reuters) - Global dairy giant Fonterra Co-operative Group Ltd on Tuesday lowered its forecast payout for its farmer shareholders, adding to pressure on New Zealand's beleaguered dairy sector.
Fonterra said it will now pay farmers NZ$3.90 per kilo of milk solids in the current season versus its prior forecast of NZ$4.15.
Fonterra Chairman John Wilson said difficult conditions in the globally traded dairy market have put further pressure on the forecast.
Until recently, dairy was the backbone of New Zealand's economy, representing around 25 percent of exports. But dairy prices have tumbled by more than half since early 2014, hurt by China's economic slowdown and global oversupply.
Weak dairy prices have put significant pressure on New Zealand farmers. The central bank has estimated around 80 percent of dairy farmers will have negative cash flow in the current season, posing a risk to the economy.
Chief Executive Theo Spierings said dairy exports and imports had been "imbalanced" for the past 18 months due to European production increasing more than expected, and lower sales to China and Russia – the two largest importers of dairy.
He had originally expected global dairy prices to recover sooner, but on Tuesday said "the timeframe for a rebalancing has moved out and largely depends on production reducing – particularly in Europe - in response to these unsustainably low global dairy prices."
Looking ahead, he said the long-term fundamentals for dairy remain positive, with demand increasing at over 2 percent a year due to the rising world population, growing middle class in Asia, urbanisation and favourable demographics.
He stressed the current forecast is based on no significant changes to either supply or demand globally before the end of the year.
"However, a reduction in the supply available for export before then could mean prices recover earlier than currently expected,” he said.
Fonterra is forecasting its New Zealand milk production to be at least 4 percent lower than last season as New Zealand farmers respond to the low prices.
