Fonterra boosts milk price forecast

Strong performance has prompted dairy co-op Fonterra to raise its forecast for the farmgate milk price, reflecting optimism in the sector. Photo: Canva

Prices have surged in the latest Global Dairy Trade auction, marking a significant rebound with a 5.5% increase across all categories. This strong performance has prompted dairy co-op Fonterra to raise its forecast for the farmgate milk price, reflecting optimism in the sector. However, caution remains as volatility and external factors, continue to influence the market.

This auction marks the largest percentage gain since March 2021, a significant turnaround from the 6.9% drop seen at the beginning of July.

Building on the previous auction’s modest 0.5% increase, this rise is encouraging news for farmers. Whole milk powder saw a substantial 7.2% increase, reaching an average of US$3,482/mt. Similarly, skim milk powder also experienced a strong boost, rising 4% to an average of US$2,636/mt.

Prices surged across the board. Kelly Eckhold, chief economist at Westpac NZ, says they are driven by the continued return of Chinese buyers for whole milk and skim milk products. “Futures markets had anticipated a strong auction, and they were correct.”

Upside in 2024-2025

Eckhold notes that if prices can maintain these levels, there could be an upside risk to Westpac’s 2024-2025 milk price forecast of NZ$8.40 (US$5.25) per kg milk solids. However, he advises caution when projecting future price trends based on recent movements.

“The reality is auction participation by the Chinese has been hit and miss and price volatility has been significant. Nevertheless, we now find ourselves with price levels at the top of the range seen this year and noticeably above long-term averages. The GDT index is around 10% above the 10-year average. So, there are some grounds for optimism,” said Eckhold.

Dairy co-op Fonterra has announced an increase in its forecast for the farmgate milk price due to rising commodity prices. As of 23 August, the New Zealand-based cooperative has raised the mid-point of its forecast for the 2024-2025 season’s farmgate milk price by NZ$0.50 (US$0.31) per kg milk solids.

Additionally, Fonterra projects its earnings for the 2024 financial year will be at the upper end of the previously announced range of 60-70 NZ cents (37.5-43.7 US cents) per share. CEO Miles Hurrell attributed these updates to recent gains in Global Dairy Trade prices and the robustness of Fonterra’s balance sheet.

China investigation

The Ministry of Commerce of China has initiated an anti-subsidy investigation on imports of certain dairy products originating from the European Union. Dairy products under the investigation include all cheese products and certain milk and cream products.

France and Italy seem to be the main countries of the anti-subsidy investigation, initiated in response to the tariffs imposed by Brussels on Chinese electric vehicles. According to data from the General Administration of Customs of China, France leads the European dairy exporters to China, with a value of US$211.5 million in 2023 and an additional US$115.3 million between January and July this year.

In second place is Italy, which exported cheese worth US$64.9 million last year, to which US$43.2 million are added in the first 7 months of 2024. The list of major exporters also includes Denmark, the Netherlands and Spain.

Australia’s dairy exports

Rabobank reports that Australia’s dairy export volumes have shown varied results this season. From July 2023 to May 2024, exports have declined by 1.2% year-on-year in terms of tonnage. Notable decreases are observed in liquid milk and whole milk powder.

Conversely, cheese, butter, and skim milk powder have performed well. The total trade value of Australian dairy exports during this period is AUD$3.3 billion (US$2.24 billion), reflecting a 4.3% decrease compared to the previous year.

In New Zealand, the milk production season has had a mixed start. June, usually a lower-output month, saw a 2.2% reduction in milk solids production. Overall, production has been down in 5 of the first 6 months of the year, primarily due to less favourable seasonal conditions in the south Island.