Fonterra’s forecast milk price ‘a ray of sunshine’ for farmers
Monday, 12 February 2024
The sun shone a little brighter for dairy farmers this week with Fonterra lifting its forecast farmgate milk price for the 2023-24 season, a move that could inject an additional $560 million into the national economy.
Economist Brad Olsen said the predicted increase was an encouraging sign for the sector. However, the financial boost that could accrue would still be $700m lower than the total payout in 2023 and $2.3b lower than the total payout in 2022.
“Things are turning around a bit and heading in the right direction, and we’ve got upward momentum.”
On Monday, Fonterra chief executive Miles Hurrell said the company’s forecast farmgate milk price midpoint for 2023-24 had been lifted by 30 cents to $7.80 per kilogram of milksolids, up from $7.50.
The forecast range for the season increased to between $7.30 and $8.30 per kilogram of milksolids, up from between $7.00 and $8.00.
Hurrell attributed the increase to five strong Global Dairy Trade (GDT) events.
“Recently, we’ve seen a lift in demand, primarily from the Middle East and Southeast Asia, for our reference commodity products,” he said.
“Overall, GDT prices are up 10% since our last farmgate milk price update in December, with whole milk powder prices up 11.5% over the same period.”
Olsen said that while the forecast would make a difference, it was still not back to where it had been.
“On-farm costs have increased significantly. Looking, for example, at the expense price index, they have increased since the start of the pandemic by 25%.”
Federated Farmers dairy sector chairperson Richard McIntyre contrasted this week’s announcement with that of last August when Fonterra dropped its predicted farmgate price to between $6.25 and $7.75 per kilogram of milksolids, with a $7 midpoint, from an earlier forecast of between $7.25 and $8.75.
DairyNZ had estimated that after taking in wider spending, this loss would amount to $5b, which was a big financial and psychological blow for dairy farmers.
“That happened when the weather was not good,” McIntyre said. “Farmers were in the thick of calving, tired and trudging in mud.
“This [week’s announcement] is the opposite of that. It’s a ray of sunshine.
“The lift only affects Fonterra suppliers, but it will put pressure on other processors to do the same to retain supply. Fonterra’s price underpins everyone else’s.
“A lot of farms will feel now they can make a profit, or break even [for the season]. It’s fantastic, and there could be a good flow-on to next season.
“I’m not saying next year will be great – there are a lot of uncertainties. But next year could be good for farmers.”
Regarding the lift in market share to the Middle East, McIntyre said this was an area that had been targeted for some years. The lift from China came with the removal of tariffs in the new year.
Since January 1, all New Zealand dairy products have been able to enter China duty free, and safeguard duties on milk powder have been dropped. Annual dairy exports to China have averaged 1.4 million tonnes, worth about $8b, each year over the past three years, roughly half of which was milk powder.
Olsen said he could not predict how the dairy market would go in the Middle East, given the volatility there, but the region had been predicted to grow in export value for New Zealand.
Hurrell said geopolitical instability and supply-chain disruption remained uncertain, but Fonterra was “well placed to continue to get the co-op’s product to customers”.
“We can navigate these dynamics thanks to our scale and our diversification across markets.”
* CORRECTION: An earlier version of this story said the financial boost was $700m in 2023 and $2.6 billion in 2022. Those amounts were not the total. (Amended February 12, 2024, 6.10pm.)