Business / Country

Fonterra cuts forecast milk price for second time in two weeks

12:41 pm on 18 August 2023

Global dairy prices had continued to slide since Fonterra last cut its forecast milk payout two weeks ago. Photo: RNZ / Rebekah Parsons-King

Dairy co-operative Fonterra has cut its forecast milk price for the second time in two weeks after prices slumped in the latest dairy auction.

The co-op further narrowed its season forecast for the coming season from $6.25 -$7.75 per kilogram of milk solids (kgMS) with a midpoint of $7 per kgMS, to $6.00-$7.50 per kgMS with a midpoint of $6.75 per kgMS.

Dairy prices fell to near five-year lows at this week's global dairy trade (GDT) auction, with the price of whole milk powder, a strong indicator of the farmer payout, falling 10.9 percent.

Fonterra had slashed its milk payout forecast by 12 percent on 4 August, on the back of weak demand from China.

Chief executive Miles Hurrell said global dairy prices had continued to slide since then, prompting the co-op to shave another 25 cents off its midpoint.

"GDT prices have fallen sharply since we released our opening forecast for the season in May, with the overall index down 16 percent over that period," he said.

"While our wide forecast range assumed movement in GDT prices, whole milk powder prices fell 10.9 percent in the most recent trading event requiring us to revise our position again."

Reduced demand from key importing regions for whole milk powder was weighing on prices, Hurrell said.

"While indications are demand will start to return over the second half of FY24, we do expect the pace of demand growth to be subdued relative to initial expectations," he said.

The co-op would continue to respond to market signals and adjust the milk price as necessary to ensure the impact of current prices and currency movements was transparent, Hurrell said.

"This is a challenging time for New Zealand's dairy farmers and the co-op is doing all it can to support its farmers."

Concern for farmers with high debt levels

Leeston dairy farmer Karl Dean - who is also a Federated Farmers vice-chair - says historically low farmer confidence will be even lower after the farmgate milk price forecast cut.

He said it was a kick in the teeth for those already running high farm debts.

"Those highly indebted sharemilkers like ourselves, we don't have land as an asset to lend against, we have only got cows.

"A lot of it is going to be those ones who made some big capital improvements, borrowed some money thinking the payout was going to be good and they could be the ones who are going to struggle the most."

Dean urged farmers to talk with their banks and the Rural Support Trust for help.