The #312 event result from the GDT auction must be causing some concern to all involved in the dairy sector. Down -5.0% overall this is the third (and largest) fall on the trot with a combined drop total now of -10.4%.
Adding to the woes is the fact that the drops are led by SMP at -8.6% followed by WMP at -5.1%. The large drop in SMP has put the value of WMP ahead of SMP for the first in a few months which seems to rectify an anomaly
- Butter index down 2.1%, average price US$5,530/MT
- Cheddar index down 2.0%, average price US$4,825/MT
- SMP index down 8.6%, average price US$3,709/MT
- WMP index down 5.1%, average price US$3,757/MT
The milk powders demand is largely driven by China and some of the economic news coming out of China is showing that despite having COVID back under some control there are still issues with reports of their health systems also being stretched. No doubt this will still be impacting upon logistics and demand for consumables.
China’s economy grew +0.4% in the second quarter this year, the slowest pace since the country was first hit by the coronavirus outbreak two years ago. The continuing COVID presence show the potential of fresh risks from a resurgence in Covid infections, making it harder for the government to meet its 5½% growth target this year. Perhaps fuelled by COVID the biggest bug in the China system seems to be a growing number of people and developers going on a ‘mortgage strike’ with up to US$2 trillion of a $38 trillion market affected.
On the positive end the ASB are still remaining buoyant regarding milk demand and are sticking to their NZ$10 per milk solid (2022-23 season) citing low international supplies as being the main driver.
Sticking with milk prices Synlait contacted me a little concerned about the “smoke and mirrors” comment I made last week. They were at pains to point out that their transparency in payout predictions is as good or in their view better than competing companies and they generally follow a similar approach to Fonterra and the final payout cannot be determined for individual farms until all the seasons milk has come in and been assessed. To quote “milk price confusion happens when farmers try and look at a monthly statement versus the whole year”. Understandable and apologies for stirring the pot, perhaps unfairly, although I was just reporting farmer feedback.
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7 Comments
Following on from your comments about Synlait forecasts verses what actually comes into the bank once adjustments have been made. The same "smoke and mirrors" can now be said about Fonterra forecasts, as they include the 10c Co-op Difference payment, which would be unlikely to be attained completely by most suppliers.
NZX 2022/23 FMP futures are now trading below the latest mid-point forecast from Fonterra. Mid-point level at $9.50 with futures last trading at $9.38, I think this is the first time this has happened this year. If the futures can stem the losses and stick around this level for the next few weeks then I think we might be due a bounce at the next GDT. NZ$ has rallied hard the last few days as well which doesn't help payout forecasts. Be good to see the back side of July weather-wise as well ... Serious amounts of rain have fallen in the last 3 weeks !!
Totally agree OhDairyMe.
It is false that Fonterra includes the 10c in its forecast pricing. The criteria are designed to force us into a certain style of farming. As a supplier we are unable to comply with the requirements to receive the 10c without radical and very expensive modifications to our business model. And there is no graduated means for us to partially qualify. But we know other suppliers who are basically bullshitting their documentation to qualify - relying on Fonterra not to look too closely.
Wait until they up the Co-op Diff payment to a higher number, eg 50c, and the Fonterra marketing department really tells you how to run your farm. The milk, however, will still get all mixed together in the milk tanker. Thus not allowing the customer to actually show how much these requirements are truly valued by them by having a separate product. Just more bureaucratic separation between the grower and the consumer.
I think the Co-op Diff payment will also mean farmers, with original and innovative ideas to solve the challenges the industry (and global food supply) face, wont be able to try them out because of the Co-op Diff penalty. Wilco, your farm system may be the solution that we need, but you don't fit Fonterra's vision for the future so are being penalised for it. Bureaucracy picking winners and all that.
If farmers that meet the Co-op Diff payment requirements really do add value to the milk products Fonterra sell, as they state, then it should be funded from the value add part of the business, reducing the dividend, not reducing the base farmgate milk price.
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