Global customers to fund new incentives for Fonterra farmers
Fonterra has announced new financial incentives for farmers who achieve on-farm emissions targets.
In the bank’s latest milk price forecast update, Kilsby points out that it’s not often that dairy farmers are rewarded with both a high milk price and strong production within the same season.
“While not all parts of New Zealand have enjoyed good conditions for pasture growth, the majority of the dairy regions are well ahead of last season in terms of production,” she says.
However, she notes that the rate of gain in milk production has eased as the season has progressed and there are concerns about how dry the summer will be in many regions. But over the full season (June to May) milk production is still expected to be ahead of last season.
“The unusual combination of strong output and a strong milk price can be attributed to slower growth in milk production in other dairy-exporting nations,” says Kilsby.
“Output in both the US and EU is relatively subdued and production is down in most South American countries. China is also reported to be decreasing its production as dairy farmers struggle to make a profit.”
The other factor that has contributed to the higher milk price is the weak NZ dollar. The US dollar has strengthened since Donald Trump’s victory in the recent US elections, and this has put downward pressure on the NZD/USD. Most dairy products are traded in USD terms, so the weak NZD means returns are bolstered in local currency terms, Kilsby says.
“It does mean imported inputs such as machinery, diesel and fertiliser are more expensive, but overall farmers tend to be better off when the NZD is weak.”
ANZ has revised its 2024-25 season milk price forecast by 85c to $9.85/kgMS. Fonterra this week lifted its forecast mid-point by 50c to a record $10/kgMS and announced a new price range of $9.50 to $10.50/kgMS. The previous record milk price was $9.30/kgMS in the 2021-22 season, followed by $8.40/kgMS 11 years ago.
Kilsby says dairy commodity prices have continued to firm as the season has progressed.
She says that by this point in the season typically about two thirds of the milk production for the season has been sold, which increases the accuracy of final milk price estimates.
“We assume that dairy commodity prices will remain near their current levels for the remainder of this season, but trend down a little as we move into next season.”
For the 2025-26 season ANZ’s initial milk price forecast is $9/kgMS but Kilsby warns that a lot could change between now and the end of next season.
“Milk price futures are currently trading at $9.70/kgMS for next season and have broken over the $10 mark for the 2024-25 season.
“While it is certainly feasible that these prices can be achieved, we have taken a slightly more conservative approach.”
