Farmers facing tough times as Fonterra cuts milk price forecast

Fonterra said it had revised its 2018/19 farmgate milk price forecast to a range of $6.25 to $6.50/kg of milksolids, down from a previous forecast of $6.75/kg because of increased milk supply.

The co-op said it had increased its forecast New Zealand milk collection volumes by 1.3 per cent to 1,550 million kg of milksolids for this season. Fonterra chief executive, Miles Hurrell, said the change in the forecast milk price was due to a stronger global milk supply relative to demand.

Dairy NZ’s estimate of break-even for most farmers is $5.40 to $5.50 kg.

“I know how hard it is for farmers when the forecast Farmgate Milk Price drops, but it’s important they have the most up-to-date picture so they can make the best decisions for their farming businesses,” he said.

“We are still seeing strong production coming from Europe, US and Argentina. While the hot weather in Europe has slowed down the region’s production growth, it is still tracking ahead of last year. US milk production is up slightly and Argentina’s is up 6.8 per cent,” he said in a statement.

Hurrell said that global demand “is simply not matching current increases in supply”.

At recent Global Dairy Trade events, prices for all products that make up the milk price have fallen.

“Demand for whole milk powder, in particular, continues to grow in China, and it remains strong across South East Asia, but it simply isn’t matching current levels of supply.”

Hurrell said Fonterra’s move to provide a forecast range, rather than a price, was part of the co-op’s intention to “provide the best possible signals”.

“We operate in a hugely volatile global marketplace, so it is very difficult to pinpoint an exact forecast farmgate milk price this early in the season,” he said.

Hurrell said weather conditions can change suddenly which can have an impact on the global milk supply.

“As a result, we have chosen to give a range of $6.25-$6.50 per kgMS and be clear that the advance rate is based on $6.25 per kgMS and the final price could be outside this range as we are still early in the season and up against considerable volatility. We, therefore, recommend farmers budget with ongoing caution,” he said.

The timing of yesterday’s update is driven by available market information and is not a requirement under the DIRA legislation.