Fonterra slashes 2023/2024 payout by $1

Rural News / news

Fonterra cuts its new season payout forecast sharply, down -$1/kgMS from a midpoint of $8.00/kgMS to $7.00/kg/MS

[updated]

4th Aug 23, 8:52am by David Chaston

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.

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44 Comments

by GJCA | 4th Aug 23, 8:54am 1691096092

Not good news for our farmers! It's going to be a tough season.

by Hamish | 4th Aug 23, 9:32am 1691098328

Or any business that rely on some of the farmgate payout being spent back into the local economy.

by Advisor | 4th Aug 23, 12:44pm 1691109899

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.

by wrangler | 6th Aug 23, 2:27pm 1691288841

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.

by Flying high | 4th Aug 23, 9:03am 1691096590

Grant Robertson... rewrite the tax take budgets!! Be quick before it changes again

by Audaxes | 4th Aug 23, 9:19am 1691097564

Money Printer Go Brrr

New Zealand Government Treasury Bill Tenders to be held weekly

Weekly coupon note tenders up $100million to $500million.

by nguturoa | 4th Aug 23, 9:12am 1691097177

Oh well. Those million dollar farms.

Why would the farmers worry. Sell it to a developer and get multi million dollar payout.

The kiwis are hooked to real estate cocaine, so they will pay whatever the price.

by Albert2020 | 4th Aug 23, 9:17am 1691097465

Break even for farmers is about $8.40 from memory.

by mfd | 4th Aug 23, 10:55am 1691103328

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?

by rastus1 | 4th Aug 23, 11:11am 1691104297

How?

By changing from a family owned lower input model, intensifying, buying the neighbour, bigger farms, corporate model, bigger debt, bigger plant, bigger inputs - and poof, here we are.

by Kinga | 5th Aug 23, 8:10am 1691179816

Because it's the same business model as housing. Speculation on capital gains not ROI

by J.C. | 4th Aug 23, 11:22am 1691104956

Break even for farmers is about $8.40 from memory.

Yes. In a range from $8.30 to $8.60.

Some of these farmers are servicing debt at 8-9%.

by Sluggy | 5th Aug 23, 7:26am 1691177216

Standard business rates. Last commercial loan I got was at 8.4%

by Casual Observer | 5th Aug 23, 12:29pm 1691195395

I know of some where its it >9-10%. The higher equity borrowers seem to be subsiding those who have low(er) equity.

by redcows1 | 4th Aug 23, 9:33am 1691098425

"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.

by sharetrader | 4th Aug 23, 9:49am 1691099383

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.

by Te Kooti | 4th Aug 23, 9:50am 1691099414

Net zero will end milk powder exports eventually anyway. May as well enable the Chinese as they will with or without us.

by Hamish | 4th Aug 23, 11:09am 1691104161

Can NZ Inc claim some global carbon credits for this altruistic behaviour?

by bw | 4th Aug 23, 10:01am 1691100073

To be fair, the whole of the Western World did that with pretty much everything, in the mistaken belief that if we do, they will become just like us.

The trouble is that wasn't China's plan at all. As we now see, their plan was for us to become just like them.

by Audaxes | 4th Aug 23, 10:52am 1691103152

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

by gnx | 4th Aug 23, 12:27pm 1691108858

Same thing happened to pine. We taught the Chileans the lot and now your finger joint skirting board in placemakers comes from…..drum roll….Chile!

by nktokyo | 4th Aug 23, 10:46am 1691102780

You'd think they would have learned from Zespris experiences

by Casual Observer | 4th Aug 23, 11:17am 1691104655

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…

by sharetrader | 4th Aug 23, 1:19pm 1691111965

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

by Casual Observer | 5th Aug 23, 12:38pm 1691195919

As per the article above - the Aussies and others simply step in to fill the void, so a bit of an own goal really.

by Dgm | 4th Aug 23, 10:04am 1691100290

Our dollar ain't going to like Fonterra..

by donny11 | 4th Aug 23, 10:28am 1691101724

The next current account print will be interesting.

by nktokyo | 4th Aug 23, 10:46am 1691102809

G.R. won't be happy he's already spent that money

by FCM | 4th Aug 23, 11:42am 1691106150

G.R has spent the next generations money, and maybe the generation after. Wait till they can open the books after new government gets in and discover all the smoke and mirrors in the accounts.

by Kinga | 5th Aug 23, 8:16am 1691180189

Bring in the National/ Act government. Tax cuts will fix things for sure.

by fortunr | 5th Aug 23, 10:21am 1691187700

This Labour government has been the worst in NZ history. No results for a huge amount of money wasted.

by Audaxes | 4th Aug 23, 11:27am 1691105232

Financially lean months loom for animal protein producers

by FCM | 4th Aug 23, 11:40am 1691106034

Shame some of the good arable producing land was converted to dairy, some of those crop prices are fairly high at moment, too many eggs in the dairy basket in some areas of NZ.

by Averageman | 4th Aug 23, 12:03pm 1691107432

Perhaps a few holiday houses will get converted into debt repayments now that debt servicing and income are further disconnected.

by ChrisOfNoFame | 4th Aug 23, 1:07pm 1691111250

While the link between the NZD and milk prices has become more tenuous in recent times ... I'd still take a punt on the NZD falling from here.

by Hans Brink | 4th Aug 23, 8:43pm 1691138581

I think it works out to 5billion less in export dollars for the economy. Which I guess means less tax take as well.

Then add in the lackluster sheep meat market and things are looking even worse.

by Landgirl | 5th Aug 23, 9:53pm 1691229192

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.

by Jack Lumber | 6th Aug 23, 7:24am 1691263470

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!!!

by Whitney | 6th Aug 23, 8:19am 1691266756

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

by solardb | 6th Aug 23, 2:32pm 1691289164

Wonder how the organic milk price is going...

by wrangler | 6th Aug 23, 3:10pm 1691291435

Any word on Olam ?

by wrangler | 6th Aug 23, 3:01pm 1691290885

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

by Jack Lumber | 7th Aug 23, 5:40am 1691343603

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

by redcows1 | 8th Aug 23, 9:16am 1691443014

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.