The New Zealand dairy co-operative has lowered its forecast farmgate milk price range for the 2022/23 season by NZ$0.20/US$0.13 after experiencing softer than expected demand for its products. Fonterra CEO Miles Hurrell said the change was prompted by skim and whole milk powder prices, which have declined and stagnated, respectively.
“Since our last update in February, prices for our products on Global Dairy Trade have either declined or remained flat,” he said.
“Skim milk powder prices have fallen 7% since February, and whole milk powder prices have not lifted to the levels assumed in the previous forecast. There are two main drivers behind this. The first is demand from China for whole milk powder has not yet returned to expected levels. The second is Northern Hemisphere milk production, and therefore skim milk powder stocks, are increasing as they head into their Spring flush.
“With these factors weighing on demand, prices have not increased to the levels required to sustain a higher forecast Farmgate Milk Price for this season.”
Supporting on-farm cashflow
Hurrell added that the co-op will also revise its advance rate schedule – through which Fonterra pays a percentage of the current forecast on actual milk volume collected – in a bid to provide income to farmers quicker. “We recognise this change has an impact on our farmers’ businesses, at a time when many are facing increasing costs,” Hurrell said.
“To assist on-farm cash flow, we are adjusting the Advance Rate schedule, which is the proportion of the season’s farmgate milk price paid to farmers each month, to get cash to our farmers earlier. We have increased the March paid April payment and plan to hold payments at that level until June.”
Hurrell concluded by saying the co-op remains ‘positive’ about the outlook for next season and would share its opening farmgate milk price forecast for FY24 in May.