Fonterra raises its farm gate milk price by 50 cents to a mid-range price of $9.20 per kgMS

Rural News / news

Fonterra ups its milk payout price forecast to a record high, even topping analyst estimates. This new level adds another $600 mln to farmer incomes taking the annual transfer to $13.8 bln. Their dividend will probably remain unchanged

25th Jan 22, 9:18am by David Chaston

Fonterra has raised the price it plans to pay its supplier farmers for their milk, by +50c per kgMS.

Their latest indication for the current 2021/2022 season is now a range of $8.90 to $9.50/kgMS, up from $8.40-$$9.00.

The mid-point is now $9.20/kg and at that level it will be paying out New Zealand suppliers $13.8 bln.

CEO Miles Hurrell said: “In general, demand globally remains strong – although, we are seeing this vary across our geographic spread. Overall, global milk supply growth is forecast to track below average levels, with European milk production growth down on last year and US milk growth slowing due to high feed costs.

“It’s a similar supply picture in New Zealand. Earlier this month we reduced our forecast milk collections for 2021/22 from 1,525 million kgMS to 1,500 million kgMS due to varied weather and challenging growing conditions.

Fonterra last lifted its forecast milk payout on December 3, 2021. This latest increase will add $600 mln from that level. Fonterra ended the previous season with a milk payout at $7.54/kgMS, so today's revision puts it 22% higher than that.

In fact, at $9.20/kgMS, this is a record high, besting the previous high in 2013/14 at $8.40/kgMS. You can track the payout history here for all dairy companies, including Fonterra.

At this new price indication, it is above all estimates by the main dairy analysts - which is very unusual. Normally Fonterra is more conservative than most analysts, especially on the way up.

In addition, Fonterra pays a dividend, which in the 2020/21 season was 20c/share. High milk prices limit their earnings. They now say: “While the higher forecast Farmgate Milk Price does put pressure on our margins in our consumer and foodservice businesses, prices in our ingredients business are favourable for milk price and earnings at this stage. As a result, we remain comfortable with our current 2021/22 earnings guidance of 25-35 cents per share.” Earnings at that level should enable the Company to maintain its 20c dividend.

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51 Comments

by Waikatohome | 25th Jan 22, 9:27am 1643056052

Without farmers and growers this country would be stuffed right now. $13.8bn is a decent chunk of change. Well done NZ Dairy Farmers.

by PocketAces | 25th Jan 22, 9:38am 1643056733

Too bad for affordability here, especially for people who should not cut out diary products for children.

We need to look seriously at dumping GST off essential food and maybe even subsidizing a few items.

Shame for NZ

by Smudge02 | 25th Jan 22, 10:23am 1643059401

I posted a while back on the need to cut GST from essential foods but gong by the responses I got apparently its in the to hard basket, ie what is an essential food, if a peanut has salt on it is it now "processed", is fruit in a can "essential" etc etc etc! I don't think its that difficult but we seem to always find a way to complicate the most simple of concepts.

by Waikatohome | 25th Jan 22, 10:45am 1643060734

There is no GST (VAT) on books or home prepared food in the UK as they see value in educating and feeding people. There is tax on foodservice and restaurant food.

by keithwoodford | 25th Jan 22, 10:44am 1643060641

Many and possibly most countries do not charge GST on food items.

Australia is just one example. The UK is another.

But apparently it is too complex for us simple New Zealanders.

KeithW

by Flying high | 25th Jan 22, 8:48pm 1643096913

Take the GST off houses. It is a complete rort. Would be the fastest way to get cheaper homes and make houses affordable/less unaffordable

by Notgreedykiwi | 26th Jan 22, 12:41pm 1643154095

Certainly there should be no GST on food.

This government says they are pro family and for the poor people but they want to take money from even what people want to eat. I could feed my family a lot more healthy if I can save that 15% on my food bill.

PM is a lady but i bet she never cooked a meal for herself and family from wholesome ingredients bought from a supermarket.

by edw | 26th Jan 22, 12:31pm 1643153486

Indeed very sad to see soft drinks are cheaper than milk.......

by PocketAces | 25th Jan 22, 9:36am 1643056597

Bloody glad I'm making an effort to cut right back on dairy products, but at this rate and expected, soon to be, just about unaffordable prices here, might have to eliminate it altogether

by David Chaston | 25th Jan 22, 9:54am 1643057641

High food prices is not just a NZ thing. See this.

In fact, global dairy prices went up +17% in the year to December, but New Zealand retail dairy prices went up only 4.2% - (apart from yoghurt which rose +20%). Kiwis got off lightly, it seems

by PocketAces | 25th Jan 22, 12:43pm 1643067790

Global prices v local incomes, bitter pill when you see what is produced here just ride on past those who need it to where the prices have been pumped.

This is the fag end of globalization

by JJS | 25th Jan 22, 10:27am 1643059657

The alternatives are worse! The Mrs has decided to go dairy free - some of the coconut yoghurt costs $14 a jar! Plus the 80c extra for almond milk with her coffee

by muzled | 25th Jan 22, 10:50am 1643061054

Urgh, almond milk, get her to have a read of this article, she might change her mind on how bad dairy is.

https://www.theguardian.com/environment/2020/jan/07/honeybees-deaths-al…

A recent survey of commercial beekeepers showed that 50 billion bees – more than seven times the world’s human population – were wiped out in a few months during winter 2018-19. This is more than one-third of commercial US bee colonies, the highest number since the annual survey started in the mid-2000s.

Beekeepers attributed the high mortality rate to pesticide exposure, diseases from parasites and habitat loss. However, environmentalists and organic beekeepers maintain that the real culprit is something more systemic: America’s reliance on industrial agriculture methods, especially those used by the almond industry, which demands a large-scale mechanization of one of nature’s most delicate natural processes.

by mfd | 25th Jan 22, 11:23am 1643063033

I've been making my own coconut yoghurt for a little while now - very easy and much cheaper, takes about 5 minutes a week to warm up a couple of tins of coconut cream to body temperature, add a couple of spoons of the last batch (or shop bought to get started), then stick it in a thermos for a day or two.

$3-4 for 800ml and tastes good - may be a little thinner than the shop bought as they add thickeners, but after it's been in the fridge a couple of hours it gets thick enough for me.

by Casual Observer | 25th Jan 22, 1:06pm 1643069190

Govt guidelines for alternatives for children https://www.nutritionandactivity.govt.nz/sites/default/files/1.3%20261%…

by Whatwillhappen | 26th Jan 22, 9:07am 1643141226

We converted to coal-dried milk powder years ago and have been paying roughly $1 per litre ever since. Great stuff! Pity about the coal, but $1 milk!

by VTHO | 25th Jan 22, 9:47am 1643057223

Does anyone still use cow milk? Haven't had it in our house for over a year. Almond and Oat milk all day. I do quite enjoy tasty cheese which is unfortunate given the price. Overall we use very little dairy anymore. As price goes up, we use less. Pretty simply.

by David Chaston | 25th Jan 22, 9:56am 1643057769

Yes. Consumption of dairy volumes is rising in New Zealand, not falling. Alternatives are still a very minor segment.

by VTHO | 25th Jan 22, 10:07am 1643058476

I guess people are spending more on milk and cheese instead of saving for that house deposit. It's a shame the youth of today can't forgo luxuries like trim milk and colby cheese, they have no hope of joining the worlds first unstoppable ponzi otherwise.

by northman46 | 25th Jan 22, 10:19am 1643059150

Not everywhere though - https://www.theguardian.com/business/2021/sep/17/britons-drink-plant-ba…

Switched to plant based milks a few years ago and never looked back.

by frazz | 25th Jan 22, 12:48pm 1643068106

Dundedin Uni cafes..50% oatmilk to Dairy.. and rising.

by HW2 | 25th Jan 22, 10:07pm 1643101674

Dundedin

Never heard of it

by DD62 | 25th Jan 22, 10:16am 1643058977

VTHO, you're welcome to your little dream world! The production of monoculture almond " juice" is one of the least sustainable food supplies going. Growers use vast amounts of water on massive plantations and use imported bees to pollinate. One of the major causes of bee colony collapse! Growing almonds is every bit as bad as as palm oil plantations! As for oat juice, way more kg of Nitrogen per ha is used to grow a good crop of oats than is used per ha in pastoral dairy farming! Then there is all the diesel burned to prepare the ground, plant, fertilize, harvest, transport and process to produce the juice! Very sustainable!

by VTHO | 25th Jan 22, 10:35am 1643060145

Lol mate your post is one large assumption. Read what I said. I never said one thing about sustainability. It is actually for health reasons if you must know. The higher price assists in the decision. You can calm down now. Btw my little dream world is quite nice - one not based on incorrect assumptions.

by DD62 | 25th Jan 22, 6:23pm 1643088206

Mate! Not! What exactly was I assuming? I was pointing out that it is a destructive unsustainable form of food production. People such as yourself who buy the product are perpetuating that! You are free to do as you like. But your oat and almond juice is far more expensive than real milk and most of what you pay goes into the pocket of offshore companies. Do some basic research!

by VTHO | 25th Jan 22, 8:13pm 1643094817

You were assuming my little dream world was one where I drink almond milk over cow milk because I care about sustainability. I never mentioned sustainability but you somehow turned your whole comment into a rant about it, assuming I wasn't aware. Like I said, predominately health reasons. Well aware of how it is produced because I did some research before hand. Another assumption by yourself that I did no basic research lol, you're on a roll, keep going..

by frazz | 25th Jan 22, 12:49pm 1643068192

Just keep that production of baby cow milk going..never mind the nitrates and drinking water in NZ.

by DD62 | 25th Jan 22, 6:24pm 1643088272

Back under your rock frazz!

by RickStrauss | 25th Jan 22, 4:47pm 1643082479

Thoughts on the below? (I.e. vs the point typically made re Oats requiring the least water)

Monculture dairy farming is in most cases better for the soil than monoculture oat growing, simply because most dairy farms grow perennial grass, clover or alfalfa. But none of them are sustainable in any wider sense and consumers are not making a good ethical or environmental choice by buying any of them.

https://www.resilience.org/stories/2021-01-19/oats-or-milk-is-not-the-q…

Go for local foods produced in organic, regenerative ways, preferably by a farmer or a community you know

Both the above and this seem to suggest a mixture of crops (in existing horticulture) and/or livestock...where are we heading in NZ in such regard?

Oddly enough, press coverage in NZ said "Boring Oat Milk founder Morgan Maw says oat milk uses 13 times less water than dairy and produces (?) six times less fertiliser." https://www.1news.co.nz/2021/10/25/oats-based-product-joins-list-of-mil…

by WhiskeyJack | 25th Jan 22, 9:27pm 1643099224

I produce over 17k L per hectare good luck getting that out of oats lol. There are dairy farms in NZ been around over 100 years, if it was unsustainable - surely their yields would be declining by now, they are not, yields are up triple or more. You have to have a time horizon of 1000s of years and discount all scientific progress to seriously think it's unsustainable. Unless of course 'unsustainable' actually means - something you don't like.

by Flying high | 26th Jan 22, 6:33am 1643132030

"unsustainable' actually means - something you don't like."

Exactly, very often the case in these peoples limited perception

by RickStrauss | 26th Jan 22, 3:43pm 1643165012

Re sustainability, clearly it seems to include emissions, use of water (effect on local aquifers / ground water), pollution of waterways etc. 100 years ago waterways in those areas were far more swimmable too and various methane and CO2 emissions had not contributed to climate change to the degree they now have.

Not a made up term solely driven by nefarious opponents, as far as I can see, which seems to be what the comment above wishes to be so.

by Whatwillhappen | 26th Jan 22, 9:11am 1643141515

Organics is a sham perpetuated by well-meaning, science denying organic farmers. Look up 'organic' and 'dispensations' - they aren't allowed to fail. If the whole world went organic we'd have widespread starvation.

by JJS | 25th Jan 22, 10:29am 1643059740

Annoying cafes still charge a premium to have non-dairy milk with your coffee. Surely the real price per litre is about the same

by Advisor | 25th Jan 22, 12:05pm 1643065519

Milk alternatives suppliers are lagging well-behind their dairy counterparts to provide a wholesale discount to commercial operators. The industry is struggling to meet retail demand due to lack of productive capacity in NZ.

E.g., our locally-grown oats have to travel 18,000 km to Sweden in order to be milked.

by Emma Lodge | 25th Jan 22, 3:44pm 1643078686

I do. I could never get behind the plant based milks as they taste disgusting to me. The only one I can drink is hazelnut milk and that is when I make it myself. I don't drink milk I just add it to drinks/recipes, so 2L lasts a week just added to cereal and recipes.

And I don't think they are cheaper? It's more like $6 per 2 litre on a good day compared to $4.80 for 2L milk.

by VTHO | 25th Jan 22, 8:16pm 1643095002

Fair enough. Almond milk is a bit bland for sure. Oat milk is much creamier and better for coffees if that's your thing. Still can't beat blue or silver top cow milk for taste in my opinion. You're correct, oat and almond are not cheaper, just as dairy gets more expensive it is easier to justify not buying it.

by waymad | 25th Jan 22, 9:57am 1643057850

Great news for the tradeable sector. Farmgate prices have multiplier effects throughout the economy, ranging from the obvious (vets, feed, fert, fences) to the subtle (robotics, drones, machine learning, systems integrators etc). None of these multipliers are captured in statistics, as Keith Woodford has pointed out: most ag inputs are treated as being in other sectors entirely.....

by redcows1 | 25th Jan 22, 10:08am 1643058497

As well the $13.8b is only what's paid to farmers, so it not the products sale price

Add to that that the figure is only 80% of the industry as it's only Fonterra.

by keithwoodford | 25th Jan 22, 10:29am 1643059758

redcows,

Yes.

Add in the non-Fonterra farmers and the total increases to about $18.2 billion.

Then add in the Fonterra dividends paid to farmers and the total increases to about $18.5 billion.

Total dairy export returns will be about $23 billion.

KeithW

by WhiskeyJack | 25th Jan 22, 4:15pm 1643080506

Haha would be nice to get a dividend

by Averageman | 25th Jan 22, 10:22am 1643059358

Well done cow peoples. Its 7 day a week hard yaka. Something the speculative should try some time. One also notes the model that allows share milkers to establish their own herd (grow equity) so they have a chance of their own farm one day.

by muzled | 25th Jan 22, 10:55am 1643061332

A thankless stressful job imo.

Anyone that moans that cockies make too much money should take in the mega debt most of them have, work 300 odd days straight before taking a break and then play to the whims of the weather to feed the animals.

Not a job I'd like to do.

by sparrow | 25th Jan 22, 1:27pm 1643070476

On the other hand, no traffic, no crowds, lots of time outside and (nearly) every day you can feel like you've achieved something.

by muzled | 25th Jan 22, 2:01pm 1643072471

Just re-read my comment and it wasn't meant to come across negative as it does, it was meant to be more a tip of the hat to the hard graft of a job it is.

And yes, totally agree, plenty of upsides.

by WhiskeyJack | 25th Jan 22, 4:20pm 1643080825

I predicted $9.50 for this season and we are getting close. I based this on the fact that fonterra is always about $1.50 out with their initial forecast and I guessed it would be higher. 10% down on last season and costs are through the roof. I'll be happy if I make the same as last season.

by CWBW | 25th Jan 22, 7:16pm 1643091395

Milk prices sure look cyclical.

What's more amazing is the lower the prices, the higher the dividends.

So the great dilemma perhaps is, do we want higher milk prices or higher dividends.

by Flying high | 25th Jan 22, 8:55pm 1643097337

I will go with higher milk but as you say the divies have a place too and the shares are valued at 20 times dividend yield

by Flying high | 26th Jan 22, 6:36am 1643132219

From the update "our path to 2030"

Fonterra will return around $1 billion of capital by FY24.

And assuming they achieve targets and maintain a positive outlook, there will be further capital returns to occur from FY25.

Also by 2030 Fonterra are targeting a dividend of around 40-45 cents per share. More than double the 20 cents last FY

by WhiskeyJack | 26th Jan 22, 7:06am 1643133967

I think the whole drive behind this current devaluation of fonterra shares is so that some of the very wealthy corporate farmers can buy a huge amount of share for cheap.

by Dairy farmer joe | 26th Jan 22, 6:43pm 1643175829

Maybe true Jack-but it sucks that those supplier shareholders who had to share up pre capital structure paid around $5 a share,with minimal dividend return on compulsory share purchase.I think the so called promise windfall of selling assets of a $1 billion (approx .60 cent return on every share held) is to retain supply & is really only getting back what we lost from poor Chinese Investments- ( Beingmate in particular)Regards