The +40c rise in Fonterra's milk payout forecast takes the total payout up to equal that for 2010/2011, which is the second highest level ever.
The history of Fonterra's payouts is here, along with the latest updates from dairy analysts.
On February 25, Fonterra effectively raised its earnings guidance by tightening the range.
Here is Fonterra's latest statement announcing the increase:
Fonterra Co-operative Group Limited today lifted its 2020/21 forecast Farmgate Milk Price range to NZD$7.30 - $7.90 per kgMS, up from NZD $6.90 - $7.50 per kgMS.
The midpoint of the range, which farmers are paid off, has increased to NZD $7.60 per kgMS.
Fonterra CEO Miles Hurrell says the lift in the 2020/21 forecast Farmgate Milk Price range is a result of consistent strong demand for New Zealand dairy.
“We’ve seen Global Dairy Trade (GDT) prices continuing to increase since February when we last updated on our forecast Farmgate Milk Price and then this week there was the 15% increase in GDT prices.
“It’s very much a China demand led story but there is also good demand for New Zealand dairy across South East Asia and the Middle East.
“China’s strong economic recovery, following the initial impact of COVID-19, is flowing through to strong demand for dairy and we’ve seen this through sales during the Chinese New Year.
“China’s local milk supply is being used in fresh dairy products and they are looking to us to provide longer-life dairy products – in particular, whole milk powder which has a big influence on the forecast Farmgate Milk Price.
“Customers know we are continuing to get products to market, despite the challenges in the global supply chain and they are looking to us for this reliability. We’re also seeing customers want to buy more of our products than usual to help mitigate the risk of global supply chain delays.”
Hurrell says today’s lift in the Co-op’s forecast Farmgate Milk Price is good news for New Zealand farmers and the wellbeing of rural communities. It would see the Co-op contribute more than $11.5 billion to the New Zealand economy through milk price payments this year.
Fonterra has decided to maintain its plus or minus 30 cent range on its forecast Farmgate Milk Price reflecting the continued uncertainties in the global dairy market.
Hurrell says it is important that farmers recognise there are a number of downside risks to the mid-point of the range. For example, the EU and US are heading into their season and their milk supply will start increasing, the impacts of COVID-19 on key markets and market volatility.
“A $7.60 per kgMS forecast Farmgate Milk Price also increases our input costs putting further pressure on our earnings in the second half of the 2020/21 financial year. More details on our earnings will provided at our half year results on 17 March.”
11 Comments
My experience of watching other farms would suggest no. What happens is they scrap the bottom of the barrel employing people who aren't up to the task, then complain bitterly about standard of the labour force. And then complain there's no way they'd pay more cause they aren't up to task. There's been a number of local contracts advertising for two months plus, they will eventually get someone dubious to take it on.
Fonterra said it paid NZ dairy farmers about $11 bln for milk in 2020. The farmgate price was $7.14/kgMS.
If it rises to $7.60/kgMS, that suggests the payout will be $11.7 bln. So every 50c adds ~$760 mln to farmer cashflows nationally and annually (plus dividend of course).
Most other dairy companies will raise their prices in line. Given they represent about another ~17% of milkflows, the overall effect of a +50c milk price rise should be about +$900 mln/year (incl. Fonterra).
Don't get too carried away Thinker, the 40c actual increase it's a 5.55% increase. Minimum wage is increasing more than that, 5.8%. ;-)
Farmers get paid on kilograms of milk solids - kgs/ms. So if a farm produces 100,000kgms a $0.40c increase is $40,000. Many costs have increased and regulatory changes will be bringing in increased costs, so most, if not all of it could get swallowed up. Banks may also ask for loan principle repayments.
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