Fonterra: too soon to say whether rises will flow to farm gate

AUCKLAND: Yesterday’s lift in dairy prices may have wiped out all pandemicrelated falls, but Fonterra Cooperative Group is demurring on whether farmers can expect a higher payout.

The average price across all products climbed 8.3% in the overnight Global Dairy Trade auction — boosted by a 14% gain in whole milk powder — in the biggest increase for the index since November 2016.

Whole milk power prices are now at $US3208 ($NZ4902) a tonne, and 1.2% more than the end of January.

The result was significantly higher than expected; futures had pointed to a more modest increase of 4.8% in whole milk powder prices ahead of the event.

It was a ‘‘great result overnight, exceeding all expectations, especially considering that volumes are beginning to increase as we approach the peak of the season,’’ Fonterra chief executive Miles Hurrell said.

Fonterra forecasts a farmgate payout of $5.40 to $6.90 per kilogram of milk solids in the current season.

While Mr Hurrell was upbeat about the overnight auction, he was cautious about the future.

‘‘While there is improved sentiment in the market, most economies are still being impacted by Covid19 and demand remains difficult to predict.

‘‘At this early stage of the season, it is too soon to predict any potential impact on the forecast farmgate milk price,’’ he said.

Looser restrictions

The lift comes as lockdown restrictions ease in major dairy buying nations, such as China.

‘‘People didn’t get as bearish about food to begin with and, now things are improving, they’re like, OK, let’s get back to our normal mentality on food,’’ Westpac Banking Corporation agri economist Nathan Penny said.

Buyers were not deterred by supply starting to ramp up, Mr Penny said, noting that production peaks in September and October, which should bring down the price.

‘‘Once we get to September, there will be nearly double the amount that was on offer last night, so buyers can wait, but obviously some of them didn’t want to,’’ he said.

While he expected some of the gains to be pared back once there was more supply on offer, Mr Penny said the lift presented an upside risk to Fonterra’s payout.

Early days

Westpac was forecasting that Fonterra will pay $6.50/kgMS, although Mr Penny noted it was very early in the season.

‘‘We have 10 more months to go and we are in the biggest recession in our lifetime.’’

Regardless, whole milk powder prices at $US3200 was a ‘‘very solid start to the season’’.

OMF director of institutional commodities Nigel Brunel said the lift surprised him, and could mean Fonterra would pay more to its farmershareholders.

‘‘New Zealand is in a good space, effectively Covidfree,’’ he said.

ASB Bank economist Chris TennentBrown said it was now reviewing its $6.50/kgMS forecast.

Previously, the bank’s economists had highlighted down side risks, but ‘‘recent price movements and today’s outsized gains flip the risks around’’. — BusinessDesk

❛ While there is improved sentiment in

the market, most economies are still being impacted by Covid19 and demand remains difficult to

predict