So what are the chances Fonterra’s payout to its farmer-suppliers could top $8kg/MS the soon-to-end current season?
That would give a timely boost to the rural economy and give farmers the kind of surge in incomes which would encourage them to step up the pace of adapting their dairy farming practices as the country moves to meet its climate change goals.
In March, Fonterra raised its forecast milk price for this season to between $7.30 and $7.90kg/MS with a mid-point of $7.60. That was up from $7.14 last season.
But now, after several good results from the fortnightly GDT auctions, and indications from futures contract prices, the speculation is that the payout could go higher.
While the GDT index slipped 0.7% at the latest auction this week, the price of whole milk powder, which has the most impact on what farmers are paid, gained 0.7% to an average US$4115 (NZ$5756) a tonne while skim milk powder, the second-most important, rose 2% to US$3433/t.
Butter prices slumped 12% to US$5035/t, weighed down by extra volume on offer. Continue reading “Two big announcements awaited from Fonterra – one deals with dairy payout, the other with the co-op’s capital structure”
New Zealand’s giant dairy co-op, Fonterra, is back in its leadership role in the country’s key export industry, feeding a revival of optimism among its 10,000 farmer-owners as it reports a “positive” half year result alongside a strong forecast farmgate milk price.
Fonterra CEO Miles Hurrell summed it up neatly when he said :
“Despite the major impact Covid is having around the world…it’s during these times you really can see what makes our co-op special”.
Hurrell himself can take a fair chunk of the credit for turning the co-op’s fortunes around, after the previous executive regime cost it billions.
He said the co-op had a “great” first half. Although revenue was down slightly to under $10 billion, earnings from China rose by more than a third. Continue reading “Why farmers are whooping a hurrah for Hurrell (and why the rest of the country should be cheering too)”
Fonterra has confirmed what most analysts had been predicting and lifted its 2020/21 forecast farmgate milk price range to $7.30 – $7.90 kg/MS, up from $6.90 – $7.50. This should send a further surge of confidence across NZ’s rural regions, hopefully in a wave strong enough to encourage farmers to plan to increase production next season.
As a result of the higher payout, the co-op will be pumping $11.5bn into the rural economy, well ahead of the $10bn predicted last year. Although farmer-suppliers to Fonterra are paid off the mid-point $7.60 of the new range, most analysts believe the final payout will reach $7.90.
That should ensure a handsome return for most suppliers, whose cost of production averages around $5.80-$6 kg/MS—and for the highly efficient, at below $4, an even better one. Continue reading “Fonterra milk price forecasts give a fillip to farmers and the regions – the co-op has become an NZX favourite, too”
Our dairy provinces are reverberating to the news that prices soared at the latest Fonterra GDT auction. The prosperity this brings to the regions will provide a significant counterbalance to the loss of earning power in the tourism sector because of the pandemic.
The average price at the auction climbed 15% to $US4,231 a tonne but, more importantly, the price for wholemilk powder, which is the key to the payout to farmers,rose an astonishing 21% to $US4,364 a tonne. Butter was up sharply to $US5,826 a tonne, or 13.7%.
Overall, the increase compares with a 3% rise at the previous auction two weeks ago.
The main dairy companies have recently narrowed their forecast payouts to farmers for the current season to above $7 per kilo of milk solids. Continue reading “Dairy price lift will give fillip to regional economies and fortify Fonterra’s confidence in pressing on with capital restructuring”
Covid-19 has delivered a body blow to NZ’s international tourism industry and bruised university incomes from foreign students — but NZ’s primary industries are rising to the challenge and yielding impressive returns week by week. As a consequence, NZ’s economy is not sustaining the kind of Covid damage which – for example – lowered the United Kingdom’s GDP by 9% last year.
Defying predictions, the dairy sector has started the year strongly. Moreover, lamb markets did not move down as expected but have marginally improved while demand for beef from China has been strong. Log returns are trending up.
On the other hand, in horticulture, the results so far have been variable: for example cherry orchardists’ crops were devastated by the weather.
For primary exporters the problems have come from different quarters, first in logistical challenges and second from the currency which has moved up to 72USc. Nevertheless, the basic message is that the rural economy has helped to fill the gaps left by the destruction caused by the Covid-19 pandemic. Continue reading “Rising world market prices for our dairy products give all of NZ cause to cheer”
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. Continue reading “Dairy prices and Fonterra’s re-establishment as a global leader should be celebrated far beyond the cowsheds”
Trade Minister Damien O’Connor trumpeted this week that the New Zealand and Chinese governments had signed an upgrade to the free trade agreement between the two countries.
We suspect he will be more coy about his contribution to the New Zealand–Australia relationship because his trumpeting – loud enough to cross the Tasman – included advice to Canberra to “show respect” and act more diplomatically towards China.
The Aussies have been riled by those remarks, according to the Sydney Morning Herald:
Senior Australian government officials are infuriated at Mr O’Connor’s comments, which they see as a continuing pattern of New Zealand not joining other allies in standing up to China’s growing assertiveness in recent months.
China’s relations with Canberra remain frozen as a consequence of the Morrison government’s call for a Covid-19 inquiry and a series of punitive trade actions has been taken against Australian export sectors. Continue reading “O’Connor phones to mollify the Aussies after trumpeting the pay-off from mollifying Beijing”
In its Thursday editorial the NZ Herald speaks an important truth: “Investment important to stay on track”. This won’t have startled its more literate readers but in its text it notes the strong result in the latest Global Dairy Trade auction, which prompted Westpac to raise its forecast for dairy giant Fonterra’s payout to its farmers to $7.50kg/MS this season.
“If this turns out to be correct, it will represent the highest payout in seven years for a sector of the economy that is arguably still NZ’s most important, even before international tourism was effectively suspended by Covid-19”.
The Herald editorial goes on to make the case that despite the buoyant mood, the only realistic way for NZ to remain in such solid shape in the post-Covid era is through stronger business investment.
This is the theme which Point of Order set out earlier this week when it contended Fonterra should go hard with this seasons’s payout to encourage investment by its farmer-shareholders in expanding production. Continue reading “Stronger business investment – by farmers, too – is essential for NZ’s post-Covid recovery”
Dairy prices increased by 3.9% across the board at the latest Fonterra global auction. The lift followed rises of 1.3% and 4.3% in the December auctions which took dairy prices to their highest level in 11 months, defying those analysts who believed Covid-19 had disrupted dairy markets.
In the latest auction WMP rose 3.1% to $US3,300 a tonne, its highest level in 12 months. Other significant movements included a 7.2% lift in the price for butter to $US4,452 a tonne.
ANZ agricultural economist Susan Kilsby said the auction results came as a great surprise and as a very positive start to the new year. She contends it strengthens the likelihood Fonterra’s milk price payout this season will be closer to the higher end of the range Fonterra is currently forecasting.
The big co-op in December narrowed the range to $6.70/7.30kg/MS.
So what are the chances, if the trend evident in recent GDT auctions continues, of the payout going even higher? Continue reading “Here’s the chance for Fonterra to play a leadership role and spur the others with its milk price”
The dairy industry has recovered some of its confidence, as its role as the backbone of NZ’s export structure has moved into sharper relief in the Covid-19 pandemic.
Rabobank’s latest quarterly survey of farmer confidence says it has improved from minus 32% to minus 23%, with demand for NZ dairy products holding up well since the previous survey in September.
The dairy industry over past seasons has been the target of urban critics for so-called “dirty dairying”, climate change warriors who want a reduction in methane emissions, and the government, which is implementing new freshwater regulations. Internally the industry was stricken with the financial woes of Fonterra.
Even now as the industry absorbs the evidence for greater confidence, it is not without strategic concerns. Most of these are focused on its Chinese markets following the problems being encountered by Australian exporters in the wake of retaliatory action by the Chinese government. Continue reading “Dairy farmer confidence is improving but there are challenges in export markets”