Improved outlook: Fonterra raises farmgate milk price forecast

By Teodora Lyubomirova

- Last updated on GMT


Related tags Dairy Farmgate milk price Supply and demand China New zealand

The New Zealand co-operative has cited improved supply and demand dynamics but warned of uncertainty in the long term.

Fonterra increased its farmgate milk price forecast range by 50 cents on the previous month. The co-op’s paying price for this season is now NZ$6.50-NZ$8.00 per kgMS with a midpoint of NZ$7.25 per kgMS.

This is the first price increase made by the co-op so far this season, which opened with a price forecast of NZ$7.25 - NZ$8.75 per kgMS in May 2023. In August, Fonterra issued two revisions, bringing its milk price down to NZ$6.00 – NZ$7.50 (held in September).

Addressing the increase, CEO Miles Hurrell said the co-op expects collections to be below the previous season and suggested that weather events could further impact supply in the coming months.

“Here in New Zealand, we’re forecasting collections to be slightly below last season, while aggregate milk growth in key export countries is expected to be below average for FY24,” he said. “The El Niño weather pattern may have further impacts on supply, and this could be driving recent buyer sentiment.

“On the demand side, we have seen increases in recent global dairy trade events. While this has been encouraging, it is not yet clear whether the stronger demand from China will be sustained. For other key regions, customers remain relatively cautious in terms of their forward purchases.

“It’s still early days in terms of the proportion of our FY24 sales book that we’ve contracted, so we still face significant exposure to volatility in commodity prices. Exchange rate volatility is another factor to keep in mind. Our foreign exchange hedging strategy is designed to help lessen the impact of this, and also supports a higher Advance Rate level than would be possible without hedging.

“We’ll continue to let our farmers and the market know as soon as we can when we think things have materially shifted.”

Demand-led resurgence

In its Q3 report Progressing Past the Pain, Rabobank theorized that the slowing global milk production is starting to catch up with the growth in demand in most regions, which could lead to a resurgence in the dairy markets as buyers rush to secure low-priced commodities. If milk output does not rebound to meet this demand however, a bullish start to 2024 could be on the cards.

Senior agricultural analyst Emma Higgins explained that milk production from the Big 7 export regions, including New Zealand and Australia, was anticipated to grow by 0.3% year on year in 2023 (down from 0.7%) driven by reductions in most regions including the US, Europe and New Zealand. Meanwhile, despite a lukewarm demand from China, the region still accounted for 30-40% of the sales on the GDT since the second quarter and demand from the second-largest dairy importer, Mexico, has also been strong. At the same time, the US Class III milk price and the GDT-weighted average both fell in recent weeks.

Fonterra reported a 2022/23 season farmgate milk price of $8.22 per kgMS and full-year milk collections of 1,480 million kgMS.

Related news

Show more