It’s a price-sensitive market, but dairy farmers should still be happy with how the season is tracking

As the government, and New Zealanders, count the cost  of the damage done by Cyclone Gabrielle, it may be  some relief to be assured that the big industries  which  earn the bulk of  NZ’s foreign exchange are still plugging  away.

For  example, at the latest Fonterra GDT auction this week, 30,693 tonnes of product was sold at an average price of $US3414 ($NZ5174) a tonne.

This was lower than at the previous auction, when it had  risen 3.2%, but only by 1.5%.

Relief for dairy farmers as prices rebound at latest GDT auction, with buyers chasing product across the board

Fonterra’s  farmers  will  be  relieved that prices in the Global Dairy Trade auction this week have rebounded – up 3.2%  across the board.

It is the first rise since December 6  The index had fallen 2.8% on January 3 and 0.1% on January 17, to kick off 2023 on a sour note for dairy farmers.

“Significant price gains across each contract period highlight that buyers were chasing product across the board,” said NZX dairy insights manager Stuart Davison.

The lift will add to the view that whole milk powder prices were expected to increase on the way into the second half of 2023, he said.

Few favourable economic signals in sight, but there’s a glimmer of light in GDT dairy export prices

Kiwis  returning  to  work after their summer  breaks  and  scanning the  economic horizon  may  find  few encouraging signals. Even  the  agricultural sector,  which proved  to be  the  mainstay at the height of the Covid pandemic, is  now having to navigate  the inflation  raging in the domestic sector.

As  well, as  Point of  Order noted at  the  beginning of  December, NZ  exports have been hit by falling world prices and a rising NZ dollar. It  was a sharp reversal from earlier in the year when ANZ Bank  was reporting its  commodity price index  had returned to its record breaking run  and stood  nearly  20%  above the level  where it had been  12 months previously.

So  there  may have been a glimmer  of  light in the  latest Fonterra GDT auction at which 31,872 tonnes of dairy product was  sold at  an average price of $US3,393  ($NZ5,280) a tonne,only 0.1% lower than at the previous  auction, when prices fell 2.8%.

The key product  of  WMP was  0.1% higher  at $US3,218 a tonne, while  cheddar also  rose, by 4% to $US4,871.

Butter  fell 0.6% to $US,4,449,and SMP 0.3% to $US2,842.

Cheddar  prices  have proved  to be the  most  resilient. Analysts  say  GDT cheddar continues to be a strong option for global buyers, especially when compared with EU or US options, most likely the reason the GDT price is steady   in the $4800  range.

If the  market has  stabilised, it  will be  welcome news  to Fonterra’s  famers,  but  also at  its Auckland HQ where  there might have been concern  that another  adjustment to its payout forecast, lowered  to  a  range of  $8.50-$9.50  in December, might have had  to be  considered.  

Dairy giant sells off its Brazilian business: is a Xmas present likely to come the way of farmers?

Dairy giant Fonterra has clinched the disposal of the last of its major South American investments. It has, with Nestlé, agreed the sale of their Dairy Partners Americas (DPA) Brazil joint venture to French dairy company Lactalis for BRL 700m (about NZD $210m subject to closing transaction adjustments).

The deal is expected to be completed by mid-2023, subject to regulatory authority approvals.

Fonterra CEO Miles Hurrell says the sale of DPA Brazil is aligned with the co-op’s strategy of prioritising its NZ milk pool.

“DPA Brazil has reached maturity as an investment for us, and the sale allows us to prioritise our resources to the businesses that are core to our strategy.”

Hurrell said that Fonterra was pleased to have secured the sale, which had been delayed due to market conditions related to COVID-19. DPA Brazil has been held for sale in Fonterra’s financial statements since January 2020.

Cow bells will be ringing as dairy giant Fonterra gets on a financial roll

Dairy giant Fonterra is on a financial roll and it wants  to send  a  new wave of confidence through the country’s cowsheds.  It  upgraded its earnings guidance to 50 – 70c per share from 45 – 60c per share.  Contrast that  with the 20c it paid for the 2021-22 season.

At the same time, it  lowered and narrowed its forecast Farmgate Milk Price range of $8.50 – $10.00kg/MS to $8.50 – $9.50kg/MS, with a midpoint of $9.00 while holding its advance rate. It also reported a strong start to the 2023 financial year.

Fonterra CEO Miles Hurrell said it was a positive start to the year given the current global operating environment.

“We continue to feel the impact of geopolitical and macroeconomic events, with higher costs at every point in our supply chain. It’s a similar story behind the farm gate with our farmer shareholders managing significantly higher input costs”.

Fresh developments on climate change measures in the dairy industry: a wake-up call to farmers

The NZ dairy industry faces climate change hurdles beyond the levies the Ardern government has indicated it will impose on farms. Fonterra CEO Miles Hurrell drew attention to them when he told an interviewer at the Fieldays at Mystery Creek the giant dairy co-op and its farmers risk not being able to access debt funding in the future if they don’t meet banks’ sustainability expectations.

Banks are wanting to set Scope 3 carbon emissions targets, which includes emissions they are indirectly responsible for, and not meeting their expectations could result in less favourable funding rates or ultimately not being able to access funding in the future.

“That’s something that we need to be aware of but it’s not a conversation we’re having with our banks at this moment,” Hurrell said.

Over the past four years, Solagri has worked with farmers and engineers to build and refine a solar solution optimised for dairy farm operations. Solagri Energy’s capital-free solution means farmers can have an innovative state-of-the-art grid-connected solar generation system without the significant upfront cost.

“The technology is advanced, but the model is pretty simple,” says managing director Peter Saunders. “Farmers provide us with a small parcel of land, about a quarter of a hectare, where we build the solar array. “In return, they receive solar electricity generated on their own farm at a fixed price for 20 years. There is zero capital cost to the farmer, any unused power will supply the local grid.”

Solagri are currently working on the development of their battery energy management system. Having recently received Callaghan Innovation funding, they expect to have batteries as a standard part of the offering within the next 12-18 months.

“The inclusion of batteries will improve the efficiency of solar and enable us to store electricity from the grid for use in the shed during the morning milking. They will also make the farm far more energy resilient with the shed being able to continue milking when the power goes down,” says Saunders.

Point of  Order sees a link between the message Hurrell was delivering an the progress Solagri is making. At its annual meeting, Fonterra told farmer shareholders that the dairy co-operative was likely to set a target for its own Scope 3 carbon emissions, which would include its farmers as 91% of its emissions were behind the farm gate. Fonterra also warned farmers that it risks losing customers and facing trade barriers in its overseas markets if it doesn’t meet sustainability expectations. Hurrell said the co-operative’s customers were setting Scope 3 targets, and putting pressure on Fonterra to come up with its own targets.

“We’ve done a lot of work on Scope 1 and 2 at our own supply chain and now the focus needs to shift to say, what do we need to do in Scope 3,” he said.

“The risks from a customers and consumer perspective is that we may be in a situation where those customers don’t work with us, they purchase from other countries, and there are other countries that do have Scope 3 emissions targets in place in various sectors.

“Of course, there may be markets that still are open to us. But our job is to extract the best value we can and we believe that those customers and consumers that are prepared to pay will be seeking Scope 3 versus those markets that may not pay the same level of return.”

While pressure was being put on Fonterra, Hurrell said the company believed that becoming more sustainable was “the right thing to do.”

“Our job is to paint a picture of what the future looks like, from a market perspective,” he said. “We feel obliged to let them know that’s what our customers and consumers are seeking.”

World dairy prices tumble further as farmers face the prospect of being charged for livestock emissions

As debate rages in New Zealand’s farming industries over the Ardern  government’s  plan  for  charges  on  agricultural emissions, prices at Fonterra’s  Global  Dairy  Trade fortnightly auction  have fallen to their lowest level in nearly two years.

The average price at the sale fell 3.9%  to US$3537 (NZD$6054) a tonne, after falling 4.6% in the previous auction.

Prices have generally been falling since hitting a record high in March, and are now at their lowest level since January last year.

Wholemilk powder fell 3.4%  to US$3279 a  tonne and  skimmilk  powder 8.5% to US$2972  a  tonne, while  butter  was  marginally  up at US$4868  a  tonne  (though  a  long way  down  from  its peak  in  March  above  US$7000 a  tonne)  and cheddar 0.9% to US$4802 a tonne.

Fonterra’s competitors challenge its capital restructuring plan – but the co-op has the backing of our Agriculture Minister

New Zealand’s   big  dairy  company, Fonterra,  has  come  under  pressure   from  two  directions  this  week.  First,  its  fortnightly GDT auction registered  another   fall  in  prices. Second,  it  faced  fire   from   four  of  its  competitors which  lobbied  the  government against  its  capital  restructuring  plan.

On  the  first issue, the latest  sale  has  taken  the GDT index  to  the  lowest level  since  January  last  year, although  what  may  soften that particular  blow  is  the  devaluation  of  the  local  currency. The  NZ dollar is  now  trading well  down against  the  greenback at US56c ,  from where  it  was  then,  around US70c.

The average price at the  auction fell 4.6% to US$3723 a tonne, after falling 3.5% in the previous auction.

Oops – the world price dips for dairy products but low NZ dollar is a compensating factor

Dairy prices have fallen  at the  Fonterra  GDT  auction this  week.  The average price at the fortnightly sale fell 3.5% to US$3911 ($NZ6830) a tonne, after rising 2% in the previous auction.

Prices have generally been falling since hitting a record high in March. But   with the  NZ dollar  now  down around the US57c mark, the  impact   of  the  latest fall  on the  farmgate  payout  will not  be as  great as it  at  first appears.

The price of wholemilk powder, which strongly influences the payout for  farmers, fell 4% to US$3573 a tonne.

Prices for other products fell  also: butter was down 7% to $4983,skim milk powder down 1.6% to $3497,  and cheddar down 3.8% to $4,966.

NZX dairy analyst Alex  Winning  said a  significant lack of demand arriving at this auction has resulted in a red screen of price declines.

“Demand to supply ratios at this auction were almost half of what arrived at the previous auction.”

The amount of product on offer was up on previous auctions, which Winning said was a factor in the weaker prices, as was the weak demand coming from Chinese buyers.

“The lack of Chinese demand remains the big unknown for the wider dairy market, everyone on the sell side is still waiting with bated breath for the Chinese buyers to rally the market higher.

“Conversely, everyone else on the buy side of the market is most likely relieved not to be competing with strong Chinese demand while prices for everything else are climbing”.

Winning said the weakness in prices perhaps mirrored the wider macro-economic environment.

“It is tough on the ground for consumers and the tail wind of steady demand from consumers is likely to be fading”.

Dairy giant Fonterra  has cut the 2022/23 milk payout forecast by 25ckg/MS to a mid-point of 9.25kg/MS.

The new range is $8.50-$10.00kg/MS. However the current advance payment rate of $5.70kg/MS remains unchanged.

Fonterra also reported a 5% drop in local milk collection in August.

Fonterra reports a $585m net profit- and $13.7bn in payments to farmers from the milk price will flow into the economy

New Zealand’s  big dairy  co-op Fonterra, reporting  its  annual  result  with  revenue  rising 11%  to  $23.4bn  says  it  has  an “exciting  future”.

Net profit  of  $585m took a $80m hit from its Sri Lankan business following economic disruption in the nation.

But chief executive Miles  Hurrell says the co-op is making tangible progress on  its strategy  to focus on New Zealand milk, be a leader in sustainability and a leader in dairy innovation and science.

Hurrell reckons  the result  shows  decisions relating to product mix, market diversification, quality products and resilient supply chain are enabling the co-op to deliver both a strong milk price and robust financial performance in a tough global operating environment.

He  says the co-op is paying a total dividend of 20c per share for its farmer owners and unit holders. And this year’s higher Farmgate Milk Price is the strongest it has ever been, “which is great news for our farmers”.

The New Zealand economy benefits from this, with $13.7bn flowing through from milk price payments alone this year.