New UHT plant construction starts
Construction is underway at Fonterra’s new UHT cream plant at Edendale, Southland following a groundbreaking ceremony recently.
ASB, which had stuck to a record $10/kgMS forecast for most of the new season, is now predicting a $9.40/kgMS farmgate milk price for Fonterra farmers.
The bank's new forecast is now more aligned with Fonterra's range of $8.50 to $10/kgMS with a mid-point of $9.25. Westpac is also forecasting $9.25/kgMS for this season.
ASB economist Nat Keall says prices have eased more than what the market expected.
“Given the ultra-tight global supply outlook, we’re still picking dairy prices to head higher, but the demand just isn’t there right now and that weighs heavily on our forecast given prices for a huge chunk of the season’s product are being struck right now,” he says.
“We’ve revised our farmgate milk price forecast lower to $9.40/kgMS, which is still one of the highest figures on record.”
He still expects tight global supply to boost prices eventually.
“As we’ve long highlighted, global dairy production remains extremely weak in many jurisdictions.
“That’s particularly the case in the EU – the world’s largest single exporter – which is also set for a grim end to the year as energy prices surge.”
NZ dairy production is also likely to be subdued with pasture growth impacted by wet weather, rising onfarm costs and labour shortage.
Keall believes global growth over the next couple of years looks set to slow further.
“But we still don’t think dairy consumption will fall enough to offset the impact of tighter supply.
“Over the medium term, we just don’t think there will be enough supply to meet demand, and that should be a boon for dairy prices.
“Add a very weak NZD into the mix and it’s a positive outlook for farmgate returns,” says Keall.
Open Country Dairy chief executive Steve Koekemoer says the recent downward trend in global pricing is disappointing but somewhat expected.
The inflationary pressure around the world and China’s lockdowns will continue to impact short term demand, he told Open Country suppliers in their latest newsletter.
He also expects dairy prices to remain high.
“Our expectation is that the tight global supply conditions will offset much of the demand drop and pricing will recover over the medium term.
“Currency benefits will also offset some of the price falls as we move through the season. All processors, including Open Country would already have FX cover in place for a large part of the season.
“We would still be covering forward at the current favourable rates. It is more a case of when this benefit will flow through into the milk price.”
