Fonterra’s milk price forecast will cheer farmers but govt has given ample cause for grumbling to persist

At  last,  a  break in the  clouds for  NZ’s  dairy farmers :  Fonterra  suppliers  could be looking at a  sharp  lift in income,  as the co-op revises   its  forecast  range for the  milk price   to $6.55-$7.55 kg/MS.And  the signals  are   strong enough to underpin projections the  milk price  will rise to its  highest level  since  2014  when the price  hit $8.40.

This  may  diminish, if not completely  halt, the   grumbling in the cowsheds  at  Fonterra’s  dismal  performance  over the last  couple of  seasons, racking  up  losses and  cutting  its dividend.

Whether  it  will  eliminate  the  animosity towards the government,  which  is  proposing to penalise dairy farmers  over  methane emissions and through its freshwater  policy, is  less certain.

The industry has  felt so targeted  by the  Ardern  government that it has  fuelled  a  rural  revolt,  based on the   belief  the government  is using  economic  tools   to force  farmers to  cut  their  dairy herds, and suffer  income loss.

The  message  the government has been sending  is that it  no longer  regards the  dairy  industry as the backbone of the  economy.

As  Fonterra   CEO  Miles Hurrell  has been  quick to  point out:

“One of our four priorities is to support regional NZ.  If you take the $7.05 mid-point of today’s revision to our forecast farmgate milk price, it’s another $450m into regional NZ.”

He might have been saying:

“Are  you reading me  Shane Jones?”

Hurrell  says  Fonterra’s earnings outlook for FY20 is based on a forecast farmgate milk price, which still falls within the new forecast range of $6.55 – $7.55 kg/MS.

The mid-point of the revised range does mean our teams will need to continue to push hard to achieve our margins, but so far we’re comfortable with how this season is shaping up in terms of underlying business performance.”

The Advance Rate which Fonterra pays its farmer owners will be set off the mid-point, $7.05  kg/MS, of the revised range.

Fonterra has recently started forecasting its milk price with a broad range –in contrast  to stating one figure as was the previous custom.

It has retained a broad $1-wide range in its latest forecast,  up from the season-opening forecast of $6.25- $7.25.

Hurrell  says  the strong demand for the co-op’s milk and the prices that are being achieved, relative to other milk producing regions, underline  the rationale of Fonterra’s new strategy to prioritise NZ milk.

Demand for whole milk powder has been firm, and for the full season Fonterra  is expecting it to be above last year. Global WMP production is down  so far  this season and  is expected to continue to decline for the remainder of 2019.

Fonterra is  also continuing to sell  skim milk powder at higher prices than EU and US dairy companies in Global Dairy Trade (GDT) events.

Hurrell says there are positive signals for milk price.

“It is still very early in the season and a lot can change. There are a number of factors we are keeping a close eye on, which is why we’ve retained a wide forecast milk price range.

“These factors include global trade tensions and political instability in some of our key sales regions. And, as is always the case, we cannot predict the weather and clearly weather conditions play a big role in global supply.

Down on  the farm, the evidence  is that  farmers  are lifting  output  per cow   both  by  breeding  higher producing  animals  but also  through new feeding  techniques.

What  the  government  doesn’t  recognise  in proposing  that  NZ  should be in the forefront  of taxing  methane  emissions   is  that if it blunts  the drive  to higher  efficiency  and leads to lower output,  the gap  will be  filled by   other countries  that  are  less efficient  and  contributing  more to global warming.

2 thoughts on “Fonterra’s milk price forecast will cheer farmers but govt has given ample cause for grumbling to persist

  1. Not sure that the govt doesn’t know about the negative impact on global emissions caused by limiting NZ milk production, more that it doesn’t care.


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