Fonterra chairman Henry van der Heyden believes there’s no question dairy demand in developing countries will remain strong. However, a spike in supply is affecting prices and economic woes in Europe and the strong Kiwi currency are piling more pressure.
Fonterra this month announced a 30c/kgMS reduction in its 2011-12 milk payout. Van der Heyden admits farmers are disappointed the payout drop came nine days before the end of the season. “It’s quite late in the season and there is certainly some disappointment out there,” he told Dairy News.
He blames extra milk mainly for driving prices down. In New Zealand, the 2011-12 season which ends next week is recording a 10% jump in production. There is just a lot of milk around, says van der Heyden.
“I can’t ever remember our milk production up by 10% in one season,” he says. In Australia, milk production is up by 0.5 billion litres. Similarly, the EU and the US are producing more milk. The drop in global dairy prices has forced the co-op to announce a lower opening forecast price for the 2012-13 season.
Van der Heyden says the new season opening forecast of $5.95-$6.05 – an opening forecast farmgate milk price of $5.50/kgMS and a forecast net profit after tax in the range of 45-55c/share – is based on “information we have today”.
“Only time will tell if we’re right. There is no crystal ball and the fundamentals are around supply and demand.”
Van der Heyden says he sees no issues with demand as developing countries in Asia want more dairy products. But what impact the EU economic volatility has on dairy prices remains to be seen.
He wants farmers to be cautious and budget conservatively. “The world is uncertain and there is a lot of volatility.”
The updated forecast payout range for the 2011-12 season comprises a lower forecast farmgate milk price of $6.05/kgMS and a forecast net profit after tax range of $570-720 million, equating to 40-50c/share. The co-op in April announced a farmgate milk price forecast of $6.35/kgMS.
However, the Global Dairy Trade (GDT) trade weighted index declined 20.3% since that announcement.
