Fonterra cuts its 2023/2024 payout again

Rural News / news

Just two weeks after Fonterra cut its new season payout forecast by -$1, it has trimmed another -25c in a further move down after yet another sharp drop in dairy prices at auction

[updated]

18th Aug 23, 8:51am by David Chaston

Hard on the heals of its August 4 cut, Fonterra has cut its new season payout forecast again, down -$0.25/kgMS from a midpoint of $7.00/kgMS to $6.75/kg/MS.

This comes just days after the last Global Dairy Trade auction saw whole milk powder (WMP) prices fall another -7.4% with the WMP price diving -10.9%.

Fonterra is scheduled to release its FY20223 annual results on September 21, and its annual meeting on November 9.

Softening the blow for dairy farmers is the imminent capital return payout after its broad divestment program, which happens today. And the co-operative has signaled that its earnings will be at the top of its previously advised range, and that should result in a higher dividend payout this year.

Here is the Statement from Fonterra.

Fonterra Co-operative Group has today reduced its 2023/24 season forecast Farmgate Milk Price range from $6.25 - $7.75 per kgMS, with a midpoint of $7.00 per kgMS, to $6.00 - $7.50 per kgMS with a midpoint of $6.75 per kgMS.

Fonterra CEO Miles Hurrell says Global Dairy Trade (GDT) prices have continued to fall since it revised its Farmgate Milk Price earlier this month, requiring the Co-op to reduce its midpoint by a further 25 cents.

“GDT prices have fallen sharply since we released our opening forecast for the season in May, with the overall index down 16% over that period.

“While our wide forecast range assumed movement in GDT prices, whole milk powder prices fell 10.9% in the most recent trading event requiring us to revise our position again.

“Reduced demand from key importing regions for whole milk powder is continuing to weigh on prices. While indications are demand will start to return over the second half of FY24, we do expect the pace of demand growth to be subdued relative to initial expectations.

“In the meantime, we will continue to respond to market signals and adjust our forecast Farmgate Milk Price to ensure that the impact of current prices and currency movements is transparent.

“This is a challenging time for New Zealand’s dairy farmers and the Co-op is doing all it can to support its farmers,” 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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59 Comments

by Mofo Fomo | 18th Aug 23, 9:02am 1692306156

Off the cuff - that's a 6 billion buck hit on the economy? and we are already in a recession.

China china china! 🇨🇳 fonterras eggs in one basket... as if Eating a Chinese pangolin didn't cause enough pain.

by tulipfarmer | 18th Aug 23, 9:37am 1692308240

Added to that lamb prices don't look great.

by profile | 18th Aug 23, 10:16am 1692310607

And the other $6 billion export - logs and lumber.

by Frank Sobotka | 18th Aug 23, 10:12am 1692310327

On the bright side cheese will get a whole lot cheaper right? After all Fonterra stated how world market prices were driving cost increases, so must now be driving cost decreases?

by Casual Observer | 18th Aug 23, 10:36am 1692311803

No, cheese went UP in the last gdt 5.8%

by Nzdan | 18th Aug 23, 11:25am 1692314746

No, the local price has an inverse relationship to global price on the way down.

by K.W. | 18th Aug 23, 1:41pm 1692322878

Correct. The more money they lose exporting, the more they have to charge domestic consumers to make up for it.

by Belle | 18th Aug 23, 11:10am 1692313800

You have to take advantage of the gold when it's there. China has played a huge part in New Zealands wealth in the 2000s.

Should we have just ignored that market? The Middle East, Europe and North America have not paid as well or taken enough product. Why on earth give our product away for the last 20 years? Its easy for you to say we should have diversified. They have done what they can. And taken the huge money from China in the offing.

Theres plenty to talk about when it comes to Fonterra. But China was a gift, for 20 odd years. Why wouldnt you?

by Mofo Fomo | 18th Aug 23, 11:25am 1692314707

No we shouldn't have ignored it, just diversified and hedged our efforts

by keithwoodford | 18th Aug 23, 12:01pm 1692316900

NZ has been attempting to diversify for many years. But developing new markets is a lot easier to talk about than to make happen, specially when it relates to food products.

KeithW

by Rumpole | 19th Aug 23, 12:33pm 1692405221

Wise words born of experience, however if the threatened global world shortage eventuates the NZ should be an excellent position to sell at premium price rebalance trade defecit and undo the damage of 6 years of Labours economic destruction.

by redcows1 | 18th Aug 23, 12:09pm 1692317399

Well doh, we have diversified. Into China.

by Belle | 18th Aug 23, 12:10pm 1692317431

Mofo...you seem to think its black and white. From a sheep farmers perspective, we are also watching our products value go down the tubes. But I have benefitted from Chinas better pricing on lamb and especially mutton hugely over the last few years. We simply could not get that money anywhere else.

You say we should be 'diversifying' ...dont you think our marketers try? For gods sake...you dont look a gift horse in the mouth. And that is what China has been to New Zealand farming. No one else wants to pay for our mutton. Yes now we go back to getting f all, but boy it was good while it lasted. You know Samsung could say the same. No one buys a new phone every year now. But jeez it was great while they did.

by rastus1 | 18th Aug 23, 2:00pm 1692324042

Mofo may well be referring to diversifying away from an over reliance on an economy based on farming and flipping houses. Don’t take it personally.

by Belle | 18th Aug 23, 3:01pm 1692327672

I dont know how many times as farmers we were told to 'diversify'. I have seen so many who did lose the shirt off their backs. We have ups and downs. So what.

We have nothing but coal to dig out of the ground. We cant do that.

We cant get the oil and gas. Cause..well ...you know...

We have over fished our ocean

We are planting our hills in pinus radiata..god forbid if that lot gets set alight.

We are over the tourists and perhaps they are over us. Plus its not 'sustainable'

We shut Hollywood out a couple of years ago, so they moved on.

People say diversify but how does that help in a recessionary environment. People carry on eating. They dont have to buy tech. Or travel. Or build stuff. We should be enthusiastic about all the great food we produce. Even when the shit hits the fan.

by rastus1 | 18th Aug 23, 3:46pm 1692330380

No Argument Belle. Unfortunately the diversification of NZ should have started years ago. Instead our champions politicians and bankers chose the easier way - encouraging house flipping,non productive speculation and destructive farming practices.

by Rumpole | 19th Aug 23, 12:40pm 1692405620

Rastus - its actually worse, the clowns impersonating a govt and their obstructionist bureacrats have de motivated many in business to the point that its almost too hard to create anything new profitably and surprise surprise little new or profitable is being created. I live more in hope than expectation that even a new more pragmatic Govt will improve things significantly.

by solardb | 18th Aug 23, 8:46pm 1692348373

Hollywood is back big time. Well they were , and will be, once the American writers strike is over. Only high profile LOTR left.

by Advisor | 18th Aug 23, 11:52am 1692316344

Even the Norwegians and Saudis have gradually moved towards a diversified export portfolio. Both those countries rank better than us in export complexity.

Here in NZ, we had a good run with high dairy prices and cheap debt but sunk all of that mostly on houses and shiny cars.

by Frank Sobotka | 18th Aug 23, 6:48pm 1692341309

Because even as a child you would have been told not to put all your eggs in one basket.

it’s quite a clear simple message about spreading risk through diversification.

Farmers very happy to charge local economy export (China rates) whilst polluting our rivers and streams. Don’t expect any sympathy now the Chinese are pulling back. That social contract was broken decades ago

by kiwimm | 18th Aug 23, 9:07am 1692306436

Whilst this is a sizeable drop, it is nowhere near the size of the drop in 2014-5 - did that drop cause any severe effects to our economy? $6.75 is the 8th highest ever payout.

by Fegus Woodward | 18th Aug 23, 9:24am 1692307447

Inflation is huge since then - costs up massively across all business. Not comparable at all.

by Albert2020 | 18th Aug 23, 9:50am 1692309048

Exactly, farm inflation has been running twice the national level and they are now losing more than a $1 on each kg of milk solid sold.

by bibi | 18th Aug 23, 10:13am 1692310382

This should be the headline more or less.

by kiwimm | 18th Aug 23, 12:41pm 1692319282

Agree - a farm profitability measure would be much more useful rather than just the income

by The Person | 18th Aug 23, 1:53pm 1692323602

If only there were a farming method that doesnt have such large input costs

by nzphoenix | 18th Aug 23, 9:07am 1692306455

Blood on the streets.

by pigeonbox | 18th Aug 23, 10:53am 1692312810

There was already blood on the streets. In the paddocks, in the rivers, in your glass of milk. DairyNZ reports two MILLION bobby calves killed last year, just to keep the dairy cows in a constant state of milk production. Fonterra hides the violence from the public, but this is an extremely brutal industry, much more than meat production. At least with meat there's only one death, and not the annual barbarism of tearing offspring away from a distraught mother, so that we can steal her milk intended for her babies. When you actually stop and think about what's happening, you realize it's truly sick.

by Belle | 18th Aug 23, 11:31am 1692315118

I agree Pigeonbox it isnt great. But an unusual place to find wisdom was Kevin Costners character on Yellowstone.

The substance of it was this. A vegetarian obviously still eats. And to grow the vegetables and grain that you eat requires many more deaths. When you plough a paddock the creatures that live there die. Some horrifically, ie little ground living mammals and birds and insects smashed up by machinery, or killed with sprays, or their habitat completely gone. To plant a crop you must kill everything else. Every butterfly. Every slug. Every weed. Every hare. Rabbit.Hedgehog.

I have family that once again have seen some pretty bad stuff from our largest dairy farmer owner in New Zealand. Its a work in progress and we need more enforcement MPI staff. But we all eat, and that requires death. Crop, fruit and vegetable farming is infinately worse, as nothing lives in that environment bar that vegetable or crop. At least with cattle or sheep farming the rabbits birds hedgehogs insects etc can share the space.

by pigeonbox | 18th Aug 23, 7:05pm 1692342354

Oh please. The "crop death" argument. Right up there with "but plants feel pain too".

by Belle | 18th Aug 23, 8:42pm 1692348149

I dont think I said our veges feel pain. But I have seen rabbits chopped up by machinery. Its not pretty

by bibi | 19th Aug 23, 10:13am 1692396839

You (pigeonbox) may not be aware that there is fairly extensive research literature on the "crop death" argument, better described as "Field Deaths in Plant Agriculture":

"If we were to average Davis and Archer’s estimates, and limit the estimate to harvested cropland (which would be to ignore the other ways that animals might be killed on cropland left fallow), we would get a dramatic number: over 7.3 billion animals killed each year. That’s remarkably more than the number of cattle or pigs slaughtered every year in the U.S. (roughly 40 and 120 million, respectively) and not too far from the number of broiler chickens killed there also (roughly 9 billion)."

This paper then continues to discuss calculation errors, and methodological/philosophical nuances such as 'The Counterfactual Problem' which addresses how to count the deaths of animals that were only able to be born due to the agriculture.

https://sci-hub.se/https://link.springer.com/article/10.1007/s10806-018…

by Belle | 19th Aug 23, 7:10pm 1692429056

The insects cop it too. I remember the days the car windscreen was splattered consistently. Not anymore. I dont even bother upending my gumboots each morning to tip out the wetas or huhus. There simply arent any. Anyone remember the large green Puriri moths? Usually one night a year they would be everywhere around the house. Loads of them. Last year I saw 3. Its got so weird the blowflies hardly exist. Back in the day chuck a mutton roast on, 100 blowies would head for the kitchen. Lucky to see half a dozen. We dont do much cropping in our area, but 1080 gets biffed around a lot.

by solardb | 19th Aug 23, 9:49pm 1692438577

a fair few hedgehogs end up in the silage too.

At least there has been a huge improvement in that the bobby calves are no longer stuck in a small crate on the side of the road to be collected.

by nzphoenix | 18th Aug 23, 11:41am 1692315660

Clean, green New Zealand. Makes you sick.

by K.W. | 18th Aug 23, 1:53pm 1692323603

Its not like those calves were killed and simply dumped in a pit somewhere out back. They were all processed and eaten. Where do you think pet food comes from?

I also find it ironic that the same people who think its unethical to kill baby calves are the same ones who have no problems killing human babies in utero. Perhaps farmers should be aborting calves at almost full term to make it morally acceptable to these people?

by pigeonbox | 18th Aug 23, 2:50pm 1692327009

Which people, specifically, KW?

by mfd | 18th Aug 23, 3:45pm 1692330307

There's probably quite a bit of overlap between pro-choice and pro-animal rights/vegans. The obvious difference is virtually no one is so pro-choice that they would permit abortion of healthy, near full-term babies. I suspect an early abortion of male calves before they are able to feel pain would be considered much better than knocking them on the head shortly after birth, if such a thing were practical.

by pigeonbox | 18th Aug 23, 7:08pm 1692342491

I would think the opposite: if somebody is morally opposed to senseless killing - just because the victim is considered inconvenient, accidental, or a waste product - then they would, in principle, be opposed to both?

It feels like you have a sort of lazy Gen Z/woke stereotype in mind without actually knowing anyone who matches what you're describing.

by Mscnz | 18th Aug 23, 7:38pm 1692344328

K W was describing anybody that votes for the green party

by solardb | 19th Aug 23, 8:27pm 1692433622

Those ones that hate farmers obviously.Quite a paranoid bunch this lot.

by Nzdan | 18th Aug 23, 9:08am 1692306522

Not to worry, just jack up the dairy prices locally to compensate.

by Frank Sobotka | 18th Aug 23, 6:51pm 1692341483

And then complain when asked to clean up their pollution.

And not getting insurance and then going cap in hand to the govt the next time a storm rolls around.

by The_Golem | 18th Aug 23, 9:30am 1692307826

Hello proper recession.

What about a diversified economy and markets is just so hard to grasp?

by Frank Sobotka | 18th Aug 23, 10:13am 1692310407

Luxy will be along in a few months to solve it. We can just sell every single house in the country to a couple of sovereign wealth funds, then sit back and congratulate each other on how wealthy we are and how booming our “economy” is

by sharetrader | 18th Aug 23, 10:57am 1692313044

they tried that but the farmers were against putting money aside from the dividends to grow into another nestle, that was the whole point of listing on the share market to get the capital to expand , that management was booted and the new management came in and starting selling those bits (i.e tip top) and is looking at getting rid of the stock listing so they could concentrate on WMP and cheese.

by Belle | 18th Aug 23, 11:34am 1692315299

Yeah the guys sitting at desks wanted their piece of the pie. Hopefully it stays with the people who get out of bed at 3.30am to get the cows in.

by meh | 18th Aug 23, 8:04pm 1692345841

If only there wasn't a fixation on asset prices, associated debt and engineered recessions, and we could all keep spending our money into our economy, growing and supporting local people and communities no matter what "the Market" says...

by nktokyo | 18th Aug 23, 9:36am 1692308165

How's that tax take looking now, Grant?

by Beanie | 18th Aug 23, 9:51am 1692309108

Nicola will be developing trembling knees every time she thinks about winning the election and it becomes her problem.

by sharetrader | 18th Aug 23, 11:04am 1692313459

Fonterra biggest problems is its structure, it is designed for short term profits for farmers so is always stuck in too much production of the low value products and not manufacturing of higher value products.

until you can separate fonterra into 2 parts and give the farmers the choice if they want to hold shares in the manufacturing of higher value added Commodities (which they will sell almost straight away) they are going to come under increasing pressure from china in the production of WMP and cheeses as their production ramps up

by redcows1 | 18th Aug 23, 12:16pm 1692317788

You might want to take a leap forward to the present. The one where Fonterra is paying an excellent value derived dividend for last season which is likely to be even better this season.

by nguturoa | 18th Aug 23, 11:07am 1692313654

It will go down a lot more.

All that greed has to come to an end one day.

by Mofo Fomo | 18th Aug 23, 11:29am 1692314990

China's great plan, in cahoots with Putin, to drag down World economies.

by Belle | 18th Aug 23, 3:07pm 1692328045

Somehow I doubt Chinas great leader wanted to head into double digit percentage drops in exports and imports to spite us lot.

by Peter hardwick | 18th Aug 23, 5:17pm 1692335842

With a global decline in milk prices, I wonder if our milk/ cheese here in nz drops,, I don’t think so, we are mugs ,just paying it, if the global milk prices have dropped 30% roughly, we should be paying 30% less for our milk here in nz, ( in a couple of months that is) cant see that, someone is creaming it hear in nz,,, not pun intended

by Market Interest | 18th Aug 23, 5:32pm 1692336722

someone is creaming it

Gold! :)

But yes, it does seem a strange dichotomy. International prices up: locals have to pay more to "meet the market". International prices down: locals have to pay more to make up for the loss.

by Frank Sobotka | 18th Aug 23, 6:54pm 1692341658

Don’t forget locals covering the pollution cleanup costs on our waterways, and providing govt bailout every time there is a storm (so no need for private commercial insurance)

by mikekirk29 | 18th Aug 23, 7:53pm 1692345191

A commodity based economy suffers in commodity downturn

plus real estate same

NZ has v little manufacturing and missed out industrialisation phase. If China is sick so will NZ be