Giant dairy co-operative Fonterra has raised its forecast milk price for farmers by an implied 30c to $7.80 per kilogram of milk solids (kgMS) on the back of rising global dairy prices.
It means that an early season slump in forecast earnings for farmers has now just about been completely reversed.
Fonterra gives its milk price forecasts as a range, and the range has been increased to to $7.30-$8.30 per kgMS, up from $7.00 - $8.00 per kgMS. This means the 'midpoint' price has risen from $7.50 to a new indicative price of $7.80.
The latest move from Fonterra is a continuation of what's been a very much yo-yoing season for farmers.
Fonterra started the current season, which began in June 2023, forecasting a 'midpoint' price of $8 per kilogram of milk solids (kgMS), but then in short order was forced to take this down all the way to $6.75.
This was due to a serious slump in global dairy prices, which between June 2023 and mid-August slumped over 15%, only to subsequently recover, and more, by some 30%.
Fonterra chief executive Miles Hurrell says the lift in the Farmgate Milk Price comes off the back of five strong GlobalDairyTrade auction events.
"Recently, we’ve seen a lift in demand, primarily from the Middle East and South East Asia, for our reference commodity products and this has been reflected in GDT prices.
"Overall GDT prices are up 10% since our last Farmgate Milk Price update in December, with whole milk powder [WMP] prices up 11.5% over the same period.
"Looking ahead, the potential impact of geopolitical instability and supply chain disruption on demand from key importing regions remains uncertain.
"We can navigate these dynamics thanks to our scale and our diversification across markets, which provides us with optionality. We are also well placed to continue to get the Co-op’s product to customers through our partnership with Kotahi," Hurrell said.
Hurrell said Fonterra’s forecast earnings guidance for the full 2024 financial year of 50-65 cents per share remains unchanged.
The actual milk price paid to farmers for the 2022-23 season, which finished in May last year, was $8.22 per kgMS, while this was itself down on the all-time high of $9.30 per kgMS paid for the 2021-22 season.
So in comparison, things were earlier looking pretty rough for this season.
However, since that August 2023 trough both Fonterra and economists have been scrambling to raise forecasts again as global prices have headed North.
Major bank economists last week pre-empted the Fonterra move and raised their forecasts, with the top market pick now for a price of $8.
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8 Comments
As a Fonterra shareholder & supplier this is very welcome,as they are passing on most of this increase paid in March for February's milk supplied.It is interesting times as China are not as active in the GDT auctions & yet there is good demand from our other markets- which we as farmers & the NZ economy as a whole should be very thankful for.
It's not clear to me with Fonterra how they balance the suppliers versus shareholder payouts.
if this is farmer controlled, I would pay out all profits and stiff the non farmer shareholders - maybe not quite but you get inclination in that direction.
Is there some kind of governance document that controls this or is it made up day to day?
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