Fonterra lowers farmgate milk forecast

Fonterra has lowered its forecast milk payment to farmers for this season as global ructions weigh on world dairy prices.

The co-operative yesterday pulled back its forecast for the 2021/22 season to between $9.10 and $9.50 per kilogram of milk solids. That’s down from its previous forecast of between $9.30 and $9.90 per kgMS. It reduces the midpoint of the range, which farmers are paid off, to $9.30 per kgMS from $9.60 per kgMS.

The country’s largest dairy company has raised its forecast payment to farmers four times this season as tight milk supply underpinned demand for New Zealand’s biggest export commodity. The downgrade comes close to the end of the season, which finishes at the end of this month, after prices for whole milk powder, a key driver of the milk price, fell by 18% over the past four global auctions.

Fonterra chief executive Miles Hurrell cited Covid-19 lockdowns in China, an economic crisis in Sri Lanka and the Russia-Ukraine conflict among recent events which have resulted in short-term impacts on global demand for dairy products.

‘‘While the long-term outlook for dairy remains positive, and we expect global demand and supply to be more balanced over the rest of the year, we have seen these short-term impacts flow through into pricing on the Global Dairy Trade (GDT) platform,’’ he said.

Dairy prices fell at the fastest rate in seven years at last week’s GDT auction, with the price index shedding 8.5%. The average price for whole milk powder, which accounted for more than half the auction volume, fell 6.5% to a

Miles Hurrell Fonterra chief executive

four-month low of US$3916 (NZ$5967) a tonne, the biggest drop sinceMarch last year.

‘‘As an exporter to 140 countries we deal with these kinds of global events all the time, but right now we’re seeing the impact of multiple events,’’

Hurrell said. ‘‘Coupled with inflationary pressures, it’s not surprising to see buyers being cautious.’’

The company’s scale meant it was able to move products between different markets and categories to ensure milk was going into the highest value products, he said. ‘‘This will be disappointing for our farmers, but the change in global dairy prices is coming off record high levels.’’

The $9.30 per kgMS mid-point of Fonterra’s latest forecast range would still be the highest milk payment since Fonterra was formed in 2001.

‘‘Right now we’re seeing the impact of multiple events.’’