Dairy prices and Fonterra’s re-establishment as a global  leader should be celebrated far beyond the cowsheds

The New Zealand economy, although battered  by the  Covid-19 pandemic, has  moved   into 2021  in  better  shape  than  anyone  might have predicted  just six months ago.

To  a degree  this has been due  to  the  continuing vibrant performance  in the export  sector  particularly  by the  primary industries. This  week  there  was a  fresh surge  of  confidence   within that sector  because of the signal from the big dairy co-op, Fonterra, in lifting its  milk payout  forecast.

Fonterra  now expects to pay farmers between $6.90-$7.50kg/MS. That is up 20c a kg from its previous forecast range of $6.70 -$7.30.

Analysts  had  seen this  coming  and  as  Point  of Order  has contended  in recent  posts  it is the  message the  rural regions  needed as  they made  plans for  the  coming year.

Given  the  global demand for  dairy products, the mood  down on the farm  may  now be  confident enough to ensure investment in  new  technology  and   other  moves  to  higher production  goes  ahead. Certainly the  sunnier  outlook  should have dissipated the  cloud   of  pessimism  which  had enveloped elements  within the industry.

Morale   within  the industry   had  taken a knock   because of the  continuing attacks   on  it  by  lobby groups like Greenpeace, which hammered  it for  “dirty dairying”   and “polluting  the  atmosphere”.

Fonterra   suppliers  had also been dismayed  when  the  co-op  racked  up  losses,  after  investments  in some overseas  operations didn’t produce the  results expected.

Now  under  its  relatively  new  CEO  Miles  Hurrell,   the  co-op  is  re-establishing itself  as a global   leader. That’s  something  which  should    be  celebrated   not  just   in the  cowsheads  but  in rural regions  generally — and in  the cities as well.

As  a  result of the milk payout revision, Fonterra  will be  pumping $11 billion  into the  rural regions,  up from the earlier estimate of $10.5bn.

Hurrell said the lift in the 2020/21 forecast farmgate milk price range was a result of strong demand for dairy, which is demonstrated by the continued increase in Global Dairy Trade (GDT) prices since the co-op last revised its milk price at the beginning of December.

“In particular, we’ve seen strong demand from China and South East Asia for whole milk powder (WMP) and skim milk powder (SMP), which are key drivers of the milk price”.

Hurrell said with NZ farmers now through the peak of the 2021 milking season, the impact of any changes in global market dynamics was reducing and its view of the season is firming up.

“However, we are continuing to keep a close eye on a number of factors. These include NZ weather conditions, expected challenges from further waves of Covid-19 and increasing milk production in the Northern Hemisphere.”

At the latest GDT auction dairy prices hit their highest level in nearly seven years. The average price at the fortnightly auction rose 1.8% to $US3614 a tonne. This came after a 4.8 % rise at the last auction two weeks ago.

Fonterra will provide more detail on its overall performance and full-year earnings guidance when it announces its 2021 half year results on Wednesday, 17 March.

Other  dairy  exporters  should  be  riding  the  same  strong  global demand  as  Fonterra,   and  given   they command  about  20%  of the  country’s milk production, it  underlines  the vital   importance  of the  dairy industry  to the national  economy

3 thoughts on “Dairy prices and Fonterra’s re-establishment as a global  leader should be celebrated far beyond the cowsheds

  1. I don’t know if you can be a global leader in a commodity except perhaps volume. Prices go up and so does production, already begun in the States


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