Record payout for dairy farmers is in the offing – but climate change policy pressure sours the outlook

Behind   all  the  Covid headlines  lurked a  positive  story this week.

Prices at the Fonterra Global Dairy Auction leapt 4.6% to hit an eight-year-high, as tight milk supply stokes demand for NZ’s biggest export commodity.

Almost  certainly Fonterra’s  farmer-shareholders  will receive a  record  payout this  season, and, with  a bit  of  luck, this  could  be  high enough  to end up  ahead  of  rising  costs.

And  even  though  local  consumers  may find themselves paying more  for  their milk, butter  and  cheese, the  country  benefits  from dairy  products boosting  export returns.  Some   economists  are  predicting   Fonterra’s total  payout to  its producers  will  top  $14bn   this  season.

At the  auction,the average price for whole milk powder, which has the most impact on what farmers are paid, posted the biggest gain, up 5.6%  cent to US$4082 (NZ$6041) a tonne, and is now 21% higher than at the same time last year.

Among  other products:

• SMP up +5% to US$3,963 or NZ$5778
• Butter up +5% to US$6,158 or NZ$8,978
• Cheddar up +1.1% to US$5,546 or NZ$8,086 (all per metric tonne)

Since December 10, 2021, in New Zealand dollar terms all products have lifted in price by between 5% and 6%.

Global dairy prices have been supported this season by weaker milk production in NZ and overseas, hindered by poor weather and higher feed costs.

Last week, Fonterra lowered its forecast for the amount of milk it expects to collect this season by 1.6% to 1.5 billion kg/MS because of “challenging pasture growing conditions”.

Demand  was  strong   from most  regional  buyers  at the latest  sale,  with  North Asian  buyers the  most active.  China secured  more  than  50%  of the product.

Buyers have “taken full stock of the tightness of milk supply globally and are now increasingly willing to pay the price to secure product,” said NZX dairy insights manager Stuart Davison.

Among the  range of  price  predictions this season  ASB Bank’s forecast,  for  example,   of $9.10 was more than Fonterra’s forecast of between $8.40 and $9.00 per kgMS, which compared with 2013’s record payout of $8.40.

ASB chief economist Nick Tuffley said:

“We’re on track for, at least in nominal terms, a record payout for farmers.”

The Global Dairy Trade price index rose to 1397, its highest level since March 2014.

Some rural  authorities   are  suggesting    the  dairy farmers  should  enjoy  “their moment  in the  sun”   because  there won’t be  much encouraging   news   coming  their  way  from the government   this  year.  For  example    the  climate  change  warriors   are  expecting   the  government to   spell  out  its  policy  on  what  measures  it  is intending to take to  curb methane emissions.

Water  policy  and nitrate pollution are other  contentious  issues.

It  remains  to  be  seen  whether  the  work  that  has  already  been done in  the  farming  regions   on  these   issues   will  be  recognised   by  the   bureaucrats  in Wellington.