Fonterra Co-operative Group has cut its forecast farmgate milk price for the soon-to-end season by effectively 30c - although the final outcome will still be a record price.
The co-op is now forecasting a price range of $9.10 to $9.50 per kilogram of milk solids, down from from $9.30 - $9.90 per kgMS.
This reduces the "midpoint" of the range, which farmers are paid off, from $9.60 per kgMS to $9.30 per kgMS.
The move by Fonterra followed very sharp falls in prices at the most recent GlobalDairyTrade auction.
Even at the lower price the payout for the season, which ends at the end of this month, will still easily beat the previous record payout of $8.40 in 2013-14. But a drop of this magnitude so late in the season is nevertheless something of an unpleasant surprise.
Fonterra chief executive Miles Hurrell said the forecast drop was due to a number of recent events that have resulted in short-term impacts on global demand for dairy products – in particular, the lockdowns in China due to Covid-19, the economic crisis in Sri Lanka and the Russia-Ukraine conflict.
"This will be disappointing for our farmers, but the change in global dairy prices is coming off record high levels. At a midpoint of $9.30 per kgMS, this would continue to be the highest forecast Farmgate Milk Price in the Co-op’s history and would see us contribute almost $14 billion into New Zealand’s economy through milk price payments, which supports the wellbeing of our local communities."
Hurrell said while the long-term outlook for dairy remains positive, and Fonterra expected global demand and supply to be more balanced over the rest of the year, the short-term impacts described above had flown through into pricing on the Global Dairy Trade (GDT) platform. Average prices for whole milk powder (WMP), a key driver of the milk price, had for example, decreased by 18% over the past four GDT events.
"As an exporter to 140 countries we deal with these kinds of global events all the time, but right now we’re seeing the impact of multiple events. Coupled with inflationary pressures, it’s not surprising to see buyers being cautious."
Looking out to the rest of the year, global milk production was expected to remain constrained as high feed, fertiliser and energy costs continue to impact production in the Northern Hemisphere, and Fonterra expects demand to recover as the short-term impacts begin to resolve.
"While there is still a high level of uncertainty in global markets, the majority of our milk has been contracted for the season. It’s for this reason that we’ve made the decision to narrow our forecast range to +/- 20 cents.
"As always, there are a number of risks we are continuing to keep a close eye on, including potential impacts on demand from inflationary pressures and rising interest rates, increased volatility as a result of high dairy prices, and further disruptions from Covid-19 and geopolitical events."
16 Comments
High milk prices are great for Farmers and rural NZ economy but when I looked at my local Countdown receipt and saw I was being charged $17 for 2 packs of home brand NZ butter I asked for a re-fund. You can now buy a bottle of wine for less than a block of butter. Crazy. Its Cleanskin Pinot Noir and dry toast for breakfast from now on.
The questions Kiwi consumers are often asking: 1) why is it so much more expensive than the same Kiwi milk products overseas (or even some foreign-sourced milk products here)? and 2) if we're forced to pay this much because "free market, exports, yada yada yada", why are we also tapped for our tax money when droughts or floods hit?
You are always banging on about farmers getting handouts from the government. Apart from the fact that the amounts the govt advances is a piddling amount, actual farmers very rarely see a cent of it. It almost always gets spent on "consultants" who will tell you how to get through the latest disaster. LOL! Do a bit of research before you stick the boot in!
I had an opportunity to catch up with the CE at the last national field days and while saying I was relieved at the change in strategy I was concerned that they didn't over promise and under deliver, exactly what they have just done. Cut the price in the last month of production when all my costs are locked in. Its great it is a record payout still but just took over $90k out of our budget for improvements for next season.
Exactly my point. They keep saying the product is sold. There is no overhang as production at the end in NZ dropped below forecast due to dry and you would assume they had forex tidied up so were they just extrapolating forward an ever improving picture and got caught out? Or does DIRA rules on market price force expectations to the upside?
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