Fonterra has raised it forecast farmgate milk price for the current dairy season off the back of strong demand from China and South East Asia.
Fonterra expects to pay farmers between $6.90 - $7.50 per kilogram of milk solids. Photo: RNZ / Rebekah Parsons-King
The dairy giant now expects to pay farmers between $6.90 - $7.50 per kilogram of milk solids. That is up 20 cents a kilo from its previous forecast range of $6.70 - $7.30.
Fonterra chief executive Miles Hurrell said the lift in the 2020/21 forecast farmgate milk price range was a result of strong demand for dairy, which is demonstrated by the continued increase in Global Dairy Trade (GDT) prices since the Co-op last revised its milk price at the beginning of December.
"In particular, we've seen strong demand from China and South East Asia for whole milk powder (WMP) and skim milk powder (SMP), which are key drivers of the milk price.
Hurrell said with New Zealand farmers now through the peak of the 2021 milking season, the impact of any changes in global market dynamics was reducing and its view of the season is firming up.
"However, we are continuing to keep a close eye on a number of factors. These include New Zealand weather conditions, expected challenges from further waves of Covid-19 and increasing milk production in the Northern Hemisphere."
At the GDT auction overnight dairy prices hit their highest level in nearly seven years. The average price at the fortnightly auction rose 1.8 percent to $US3614 a tonne. This followed a 4.8 percent rise at the last auction two weeks ago.
Fonterra will provide more detail on its overall performance and full year earnings guidance when it announces its 2021 half year results on Wednesday, 17 March.
More in the back pocket
Federated Farmers Dairy Chair Wayne Langford said the lift in payout and the GDT would have a trickle down effect into other sectors.
Farmers would have extra money in the back pocket to spend on capital items they were previously holding off on, he said.
"It is really important that people in those jobs, understand that for the average dairy farmer this slight increase is an extra $20,000 or $30,000 and potentially farmers will be looking at spending that," Langford said.
"Whether that is a new shed or tractor or just some tidy up jobs around the farm, that is where others in the community can get amongst it."