Tuesday, 11 December 2018 10:55

Global milk supply forces down milk price

Written by 
John Monaghan. John Monaghan.

Persistently strong global milk supply forced Fonterra to cut its milk price forecast last week by about 20-25 cents.

The season’s farmgate milk price range is now $6 - $6.30/kgMS — down from $6.25 - $6.50/kgMS. The co-op is maintaining its forecast earnings per share range of 25-35 cents. 

It also confirmed it is negotiating to take back full ownership of the Darnum plant in Australia and is looking at selling Tip Top, although it wants it to remain a New Zealand business.

Fonterra chairman John Monaghan says the revision is due to the global milk supply remaining stronger relative to demand, which has driven a downward trend on the Global Dairy Trade (GDT) index since May. 

“Since our October milk price update, production from Europe has flattened off the back of dry weather and rising feed costs. US milk volumes are still forecast to be up 1% for the year,” says Monaghan.

“Here in NZ we are maintaining our collections forecast of 1550 million kgMS. NIWA is saying it’s likely we will see an abnormal El Nino weather pattern over summer and this could impact our farmers’ milk production.

“Demand from China and Asia remains strong. However geopolitical disruption is impacting demand from countries that traditionally buy a lot of fat products from us.”

Fonterra chief executive Miles Hurrell says the latest forecast assumes demand will firm during the balance of the season, in line with predictions by other market commentators.

“Unknowns [persist] in the global demand and supply picture and we recommend farmers budget with ongoing caution. Fonterra’s advance rate has been set off a milk price of $6.15/kgMS.” 

Fonterra’s first quarter gross margin of $646 million is down $14m versus the same period last year and up slightly on a percentage basis from 16.6% to 17%. Revenue of $3.8 billion is down 4% and sales volumes were down 6% to 3.6b liquid milk equivalent (LME).

The co-op’s ingredients business, despite lower sales volumes, performed solidly during the first quarter with a gross margin of $273m, up $28m on last year. The consumer business also performed well with a gross margin of $310m, up $10m on last year and volumes were up 5%.

Hurrell says the co-op generally makes a smaller proportion of its total annual sales in the first quarter. “This means the results from the first quarter do not give much insight into earnings performance for the full year.”

More like this

Cynical politics

OPINION: There is zero chance that someone who joined Fonterra as a lobbyist, then served as a general manager of Fonterra's nutrient management programme, and sat on the board of Export NZ, a division of lobbyist group Business New Zealand, doesn't understand that local butter (and milk and cheese) prices are set by the international commodity price.

Why is butter so expensive in New Zealand? Fonterra explains

Kiwis love their butter, and that's great because New Zealand produces some of the best butter in the world. But when the price of butter goes up, it's tough for some, particularly when many other grocery staples have also gone up and the heat goes on co-operative Fonterra, the country's main butter maker. Here the co-op explains why butter prices are so high right now.

Featured

Rural backlash over plan to cut police staffing

Federated Farmers North Canterbury president Bex Green says two public meetings held this week should have made it loud and clear that rural families and businesses are concerned about proposed staffing changes at NZ Police.

DairyNZ thanks farm staff

August 6 marks Farm Worker Appreciation Day, a moment to recognise the dedication and hard mahi of dairy farm workers across Aotearoa - and DairyNZ is taking the opportunity to celebrate the skilled teams working on its two research farms.

Editorial: Getting RMA settings right

OPINION: The Government has been seeking industry feedback on its proposed amendments to a range of Resource Management Act (RMA) national direction instruments.

National

Machinery & Products

Fliegl offers effluent solutions

Founded in Germany as recently as 1977, today, the Fliegl Group employs more than 1100 workers, offering an expansive range…

» Latest Print Issues Online

Milking It

Fatberg

OPINION: Sydney has a $12 million milk disposal problem.

Synlait snag

OPINION: Canterbury milk processor Synlait's recovery seems to have hit another snag.

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter