The new midpoint of the range is now $8.30, a drop of 20 cents. Photo: RNZ / Rebekah Parsons-King
Dairy giant Fonterra has lowered its forecast milk price payout for the current season to a range of $8.00 to $8.60 per kilogram of milk solids (kgMS).
The new midpoint of the range is now $8.30, a drop of 20 cents. The previous range was $8.20 - $8.80 per kgMS.
In an update to suppliers on Monday morning, chief executive Miles Hurrell said demand for dairy products has been softer than expected,
"There are two main drivers behind this. The first is demand from China for whole milk powder has not yet returned to expected levels. The second is Northern Hemisphere milk production, and therefore skim milk powder stocks, are increasing as they head into their spring flush.
"With these factors weighing on demand, prices have not increased to the levels required to sustain a higher forecast farmgate milk price for this season."
Fonterra recognised this change had an impact on our farmers' businesses, at a time when many are facing increasing costs, Hurrell said.
"To assist on-farm cash flow, we are adjusting the advance rate schedule, which is the proportion of the season's Farmgate Milk Price paid to farmers each month, to get cash to our farmers earlier. We have increased the March paid April payment and plan to hold payments at that level until June.
"We are able to do this because of the strength of the co-op's balance sheet, which is further supported by our strong full-year earnings forecast."
Despite the drop in forecast, Hurrell said Fonterra remains positive about the outlook for the next season. It will share the opening farmgate milk price forecast for the 2023-24 season in May.
Federated Farmers dairy chair Richard McIntyre said it was not the news farmers wanted to wake up to on a Monday morning.
"Especially following the 50c drop in the milk price a couple of months ago, but that said it's good to get early signals from Fonterra so we can adjust our budgets."
McIntrye said the average dairy farm has a break even price of $9 per kgMS, so the lowering forecast is pinching profits.
"I'm sure there will be some disappointed farmers around New Zealand today and there'll be some stress as they try and work out how they're going to fill this gap.
"But this wasn't a surprise - we all knew that prices have been trending backwards but it's about dealing with it and moving forward, revising budgets and looking at decreasing working expenses where possible."
A lot of dairy farmers have paid down a lot of debt over the last five years, so some might be able to go interest free on their loans for a while to help them get through this season, he said.