Dairy giant Fonterra has lifted the mid-point of its forecast farmgate milk price range to $6.80kg/MS, up from $6.40,while retaining its current +/-50c per kgMS range.
It’s a shot in the arm not just for the co-op’s farmer-suppliers and the country’s rural regions but also for the national economy as it strives to recover from the impact of the Covid-19 pandemic.
At a $6.80 milk price more than $10bn will flow into regional NZ.
Fonterra has found stronger demand from China, particularly for wholemilk powder which is a big driver of the milk price.
This will be encouraging for other milk processors including A2 Milk whose shareprice has been marked down by investors worried about demand for infant formula in China.
Fonterra CEO Miles Hurrell, announcing the milk price move, says despite the initial impact of Covid-19, demand for dairy products in China has recovered.
“While it is still early in the season, dairy prices have improved from the levels we saw on GDT through the first wave of Covid-19 and demand for milk powders has proved resilient.
“We have seen this demand reflected in GDT auctions, with prices trending upwards in recent events and this is supporting our decision to lift the range and its mid-point, which farmers are paid off.”
Hurrell says one of the co-op’s priorities is to have a competitive milk price, because this not only supports its farmers but it supports local communities as well.
Commenting on the supply-and-demand picture, Hurrell says the co-op is keeping an eye on a number of factors, which is why it is retaining a wide forecast range of $6.30 – $7.30 kg/MS.
“It is still relatively early in the season and a lot can change. For example, we could experience volatility with exchange rates, milk supply from the EU and US is increasing and there continues to be uncertainty around how a potential risk from further waves of Covid-19 and a global economic slowdown could impact demand.
“With increasing demand and supply, we see the dairy outlook as more balanced, but given there are still a number of risks, we are still recommending our farmers be cautious with their decision making.”
As Point of Order sees it, farmers who have been astute enough to aim for higher production through the latest techniques while at the same time moving towards sustainability will be looking forward to the prospect they can match or even improve on last season’s bottom line, when the final milk price was above $7/kg/MS.
Meanwhile the strong outlook for the dairying is stimulating activity in the industry more broadly. NZ’s biggest land investment fund, Southern Pastures, is taking over the 50% of Lewis Road Creamery that it doesn’t already own while Lewis Road Creamery founder Peter Cullinane stands down. Southern Pastures, which operates 20 farms in the Waikato and Canterbury is seeking to expand sales in the US.
And work is set to begin on building Happy Valley Nutrition’s new $280m milk processing plant in Ōtorohanga early next year. General manager Greg Wood expects construction of buildings to get underway later in 2020 with first production planned for July 2022.
While the company’s intent remained to use primarily A2 or organic milk, it would be configured to enable it to take different milk types.
Most of the product would be exported to Asia. The company has investors from New Zealand, Australia, Hong Kong and Singapore.Initially it would look to process about 100m litres of milk.