Friday, March 29, 2024

Fonterra hikes forecast milk price

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Fonterra raised its forecast payment to farmers for their milk, with strong demand from Chinese and South-East Asian buyers today, pushing whole milk powder (WMP) prices near a five-year high.
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The world’s biggest dairy exporter raised the forecast milk price to $6.90 to $7.50 per kilogram of milksolids, up from a previous range of $6.70 to $7.30/kgMS, further cementing the primary sector’s role in underpinning New Zealand’s economic prospects as the covid-19 pandemic rolls on.

The $7.20/kgMS midpoint would see Fonterra pay $10.98 billion to its shareholding suppliers if its forecast production of 1.53 million kgMS holds, up from the $10.68 billion based on the previous $7/kgMS forecast midpoint.

“We’ve seen strong demand from China and South-East Asia for whole milk powder and skim milk powder, which are key drivers of the milk price,” chief executive Miles Hurrell said in a statement.

“Now that we’re through the peak of the 2021 milking season, the impact of any changes in global market dynamics is reducing and our view of the season is firming up.”

Government data last week showed dairy exports to China fell 21% to $740 million in December compared to the same month in 2019, driving a 19% decline in international sales of milk powder, butter and cheese to $1.61b. However, total milk powder, butter and cheese exports were up 0.4% at $15.83b in calendar 2020.

China remains NZ’s biggest trading partner with two-way trade of more than $29b in 2020, and last week Trade Minister Damien O’Connor and Chinese Commerce Minister Wang Wentao signed an upgrade to the 13-year-old free trade agreement. 

Fonterra’s upgraded forecast comes after this morning’s Global Dairy Trade (GDT) auction showed a 1.8% increase in the GDT price index, with gains across all products except skim milk powder.

Whole milk powder prices rose an average 2.3% to US$3,458 per tonne, pushing close to a five-year high.

NZX dairy analyst Amy Castleton says WMP remained at lofty heights, with buyers willing to pay a premium now NZ’s season peak has passed.

“With the tight price range across contract periods, there is little doubt that this is supply line building, compared to fulfilling short term needs,” she said.

The dairy auction prompted ASB Bank economists to raise their forecast milk price to $7.40/kgMS from $7/kgMS, and last week Synlait Milk hiked its base forecast by 80c to $7.20/kgMS.

Fonterra’s NZ milk collection slipped 0.7% in December to 813.1 million kgMS, with a wide range of weather conditions across the country, supported by good levels of supplementary feed.

Hurrell says Fonterra is still watching a number of factors, including domestic weather conditions, expected challenges from future waves of the covid-19 pandemic, and increasing milk production in the Northern Hemisphere.

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