Fonterra has increased its farmgate milk price forecast for the current season. This decision comes as milk supply decreases and demand goes up.
On Monday, the co-operative set the new forecast price between $6.50 and $8 for every kilogram of milk solids. This change raises the midpoint price, which is what farmers receive, by 50 cents to $7.25 per kg of milk solids.
This higher forecast is now nearer to the DairyNZ’s breakeven price of $7.78 per kg of milk solids.
Miles Hurrell, Fonterra’s chief executive, explained that this positive change is because of both supply and demand factors. In New Zealand, milk collections are expected to be a bit lower than last season. There might also be supply problems because of the El Niño weather. On the other hand, demand has gone up, especially at recent Global Dairy Trade events. However, it’s uncertain if the increased demand from China will continue.
At the season’s start, global dairy prices dropped a lot. This was due to low demand from China, a major buyer of Fonterra’s whole milk powder. But, last month, Chinese buyers came back, raising the price of whole milk powder by nearly 10%.
This season, Fonterra’s milk collection is 2.2% lower than the last one. This is because farmers are producing less milk due to low prices and high costs.
Hurrell warned that there might be price changes because of changes in the global market. But, Fonterra’s plans protect against big price changes and help pay farmers more. The expected price in the futures market is $7.85 per kg of milk solids for this season.
