Fonterra is cutting its new season payout forecast sharply, down -$1/kgMS from a midpoint of $8.00/kgMS to $7.00/kg/MS.
This comes just days after the last Global Dairy Trade auction saw whole milk powder (WMP) prices slump 8.0%.
Fonterra is scheduled to release its FY20223 annual results on September 21, and its annual meeting on November 9, 2023.
Here is the Statement from Fonterra.
Fonterra Co-operative Group Ltd today reduced its 2023/24 season forecast Farmgate Milk Price range from $7.25 - $8.75 per kgMS, with a midpoint of $8.00 per kgMS, to $6.25 - $7.75 per kgMS, with a midpoint of $7.00 per kgMS.
Fonterra CEO Miles Hurrell says the revised forecast Farmgate Milk Price range reflects ongoing reduced import demand for whole milk powder from Greater China.
“When we announced our opening 2023/24 season forecast Farmgate Milk Price in May, we noted it reflected an expectation that China’s import demand for whole milk powder would lift over the medium-term.
“Since then, overall Global Dairy Trade (GDT) whole milk powder prices have fallen by 12%, and China’s share of whole milk powder volumes on GDT events has tracked below average levels.
“This reflects a current surplus of fresh milk in China, resulting in elevated levels of local production of whole milk powder, and reducing near-term whole milk powder import requirements.
“The medium to long term outlook for dairy, in particular New Zealand dairy, looks positive with milk production from key exporting regions flat compared to last year,” says Mr Hurrell.
A history of dairy payout levels for all companies is here, along with the most recent analyst forecasts.
44 Comments
Or any business and individual operating in our economy, period. Dairy brings the lion's share of our export earnings and without those dollars flowing in (and crude prices rising again), our current account deficit will worsen over the next season.
Either we cut back on imports drastically (lower living standards generally) or stick to the status quo until the foreign markets (currency, bonds, rating agencies) whack us back into line.
Much of the payout will continue to make its way into the rural community. Farmers will struggle to reduce costs of production without negatively affecting the business further. Suppliers such as the vets, transportation, etc etc engineers, contrators, graziers will continue to do well. There was a definite lift in suppliers pricing last season due to the 'Fonterra effect' Economists such as Nathan Penny spruking yet another $10 payout early in the season. This must be his 4th attempt at $10, not that we are counting .... High domestic costs of production and low international returns. On the horizon for many dairy farmers is taking on hard debt to continue to operate this season.
Money Printer Go Brrr
New Zealand Government Treasury Bill Tenders to be held weekly
Weekly coupon note tenders up $100million to $500million.
Business barely seems worth doing in that case - those levels have only been reached for a couple of seasons. I appreciate this doesn't account for inflation, but how did we end up having such fine margins in an industry we are supposed to have a competitive advantage in?
"This reflects a current surplus of fresh milk in China, resulting in elevated levels of local production of whole milk powder"
I know , let's export live animals to china and help build their dairy herd, it's a great plan. What could go wrong. Bloody Labour government stopped it, put National in.
i always thought it was crazy of fonterra to set up farms in china export our cows over and teach the locals our way of doing things then pretty much handing over to them,
will be a bit of ouch next year as costs to produce are up
Fonterra has agreed to sell its China farms for a total of $555 million (RMB 2.5 billion*1), after successfully developing the farms alongside local partners.
CEO Miles Hurrell says in building the farms, Fonterra has demonstrated its commitment to the development of the Chinese dairy industry.
“We’ve worked closely with local players, sharing our expertise in farming techniques and animal husbandry, and contributed to the growth of the industry.
U.S. House passes the "Taiwan International Solidarity Act", rejecting the 1971 UN Resolution on China's legitimacy. Why?
@BrianJBerletic suggests that U.S. foreign policy remains focused on pursuing global hegemony even at the cost of Americans' well-being. #RealityCheck Link
WA dairy farmers are in a prime position to capitalise on New Zealand’s impending live export ban, with Australia set to fill at least some of the void amid increasing demand from China for high quality dairy heifers.
All live animal exports from New Zealand will cease from April 30 after the NZ Government legislated to end the practice, signing an animal welfare amendment Bill into law last September.
New Zealand’s live dairy cattle export industry has been predominantly targeted towards China in recent years and in 2021, all 110,000 plus breeding cattle exported by sea from NZ were sent to China.
https://www.countryman.com.au/countryman/livestock/dairy-industry-to-ca…
and if national get back in they want to restart this trade, i am sure behind the scenes fonterra was lobbying the government to stop this trade as the long term effects was only going towards not ending well for NZ dairy farmers, the whole animal welfare was a smokescreen
If only it was just dairy - unfortunately it ain’t. Logs, red meat, hort - you name it - the price is flagging. Basically everything we sell is set to endure a sulky lull thanks to the world feeling poorer. As a result - we’re about to be quite a bit poorer ourselves - which is exactly why we maintain a lower debt profile than most countries - for everyone who crowed about how much more debt we could have ‘comparatively’ - you’re about to see why we can’t even afford the debt we have.
Until all NZ primary industry understands the real risks of where and what we are, stop blindly believing it can't fail (wool) the saga will continue and everyone will just soldier on doing the same. We are very small, a long way away and produce virtually zero of anything (well within the overall margin of error). We will struggle on but in 30 years NZ will look very different and we maybe very surprised where we earn our living from. I'm in Europe and no one is concerned about NZ, those who know where it is, and the only recognition is landscapes and hobbits!!!
Nice to be travelling in Europe at the moment Jack, how about adding to your comments as where Nz inc will get revenue from in the future ?
The thought that Ag is not necessary to the economy is not new and you’re not the first to preach this, so how ?
I am keen to understand
Pre covid the rural pages on stuff were at their peak, awash with a negative farming article, a opinion piece to support the first article ,then a historical piece to support the second article and then a opinion piece to tie them all in. Farming in New Zealand was a sunset industry, and tourism was going to take over. Lock down came and the 'farming news' stopped. There are few occupations which have to regularly experience this level of negativity. Is New Zealand unique in its medias approach towards farming ?
Income in the farming sector has never been terribly high in the last 30 years. The odd peak. This is looking like a dreadful result from fonterra though. Overdrafts will not cope, and the hard debt taken on will take years to pay back
I'm not saying Ag won't be important- it will be very important still but we are going to have to do other things as well as looking around here our chances of open access here are remote. Do not underestimate the rise of IT and also the power of Kiwisaver investments as they grow and are invested offshore. This returns dividends and capital back to NZ holders. By 2050 kiwisaver could be over 2 trillion in value. Even if only a 2% return for offshore investments it's a lot of earnings back to NZ. Instead of us sending our dividends offshore they can come back from others work
We've needed to do other things all my nearly 40years of working life Jack. And yet here we are from 60% of exports way back primary products are now 80%.
IT is great, it makes Agri way more productive, other areas of the economy seem to lag. Maybe if there was a plan to actually change to something new but all I see is service industry like banks and Bunnings etc sucking up the cash to export it with a government red or blue totally supporting this. Over waiting.
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