Tuesday, 29 October 2019 12:55

Milk price hike a surprise and relief

Written by  Pam Tipa
Chris Lewis. Chris Lewis.

Fonterra's farmgate milk price forecast upgrade was a welcome surprise although indicators were heading that way, says Federated Farmers dairy chair Chris Lewis.

“We are so nervous and cautious at the moment so I guess it was a bit of a surprise,” he told Dairy News.

Farmers had some expectations as they had noted the drop in the US dollar and compared to last year the GDT is on average $300/t higher. 

Fonterra last week increased its 2019-2020 forecast farmgate milk price range from $6.25- $7.25/kgMS to $6.55- $7.55/kgMS. 

The advance rate Fonterra pays its farmer owners will be set off the mid-point -- $7.05/kgMS -- of the revised range. 

News of the upgrade would be greeted with a “huge sigh of relief” by cash-strapped farmers, says Lewis.

“It is good news for farmers who have been feeling a lot of pressure of late,” he said.

“Finance has been very tight and some of the regulations -- greenhouse gas and water -- are weighing heavily on farmers’ minds.

“There has been huge mental pressure for farmers of late, and we are overdue for some good news, so it’s a positive indicator as to where our season might end.”

He says he could feel a collective sigh of relief.

Lewis and some economists expect the current month -- when production typically hits its season peak -- could show a slight decline.

Rabobank dairy analyst Emma Higgins says they anticipate a farmgate milk price of $7.15/kgMS is possible for the 2019-20 season. 

“We see global milk supply and demand remaining largely in balance over the remainder of the season,” she said. 

“Coupled with a weaker kiwi dollar relative to last year, we see the possibility for further upside to our existing forecast. For now we are comfortable with $7.15/kgMS and we will be reviewing our forecast in early December 2019.

BNZ senior economist Doug Steel says the new forecast range with a mid-point of $7.05 makes sense. BNZ lifted its own forecast a few days prior to the announcement to $7.10/kgMS.

 “Fonterra notes good international prices for the season to date and encouraging supply and demand dynamics for the period ahead,” Steel said. 

“This suggests Fonterra has a degree of comfort that international prices will generally maintain their current decent levels.”

A watch on the GDT auctions will show how it plays out.  

Fonterra chairman John Monaghan says the co-op had been achieving good prices for its milk so far this season. 

“Demand for whole milk powder (WMP) has been firm, and for the full season we’re expecting it to be above last year. Global WMP production is down year to date and expected to continue to decrease for the remainder of 2019. 

“We are also continuing to sell our skim milk powder at higher prices than EU and US dairy companies in Global Dairy Trade (GDT) events.” 

Fonterra chief executive Miles Hurrell says there are positive signals for the milk price.  

“It is still very early in the season and a lot can change. There are a number of factors we are keeping a close eye on, which is why we’ve retained a wide forecast milk price range,” he said. 

Hurrell says the strong demand for the co-op’s milk and the prices being achieved, relative to other milk producing regions, demonstrate the rationale of Fonterra’s new strategy to prioritise New Zealand milk.

“One of our four priorities is to support regional New Zealand. If you take the $7.05 mid-point of today’s revision to our forecast farmgate milk price, it’s another $450 million into regional New Zealand.” 

Never been busier

Federated Farmers is the busiest Lewis has ever seen it in trying to keep on top of responses to government policies, he says.

“Water, greenhouse gases, and you’ve got the biodiversity coming up, Resource Management Act, immigration announcements, the RoVE review on Primary ITO -- I could go on,” Lewis said.

“I have been involved with Feds for 13 years and we have never, ever, ever been so busy as we are now. We are stretched beyond our capacity with all the things coming out.

“It is more than overwhelming. We don’t want to let our farmers down and to do a good job requires a massive amount of resources. It’s really making us work hard. 

“You have to piece it altogether -- all the science, the economics, all the different policy things. There are so many documents. There’s a 400 page one, then another 400 page one behind it.” 

The Feds have had to split into different teams to deal with different sections just so they can make some sense of it. 

He says there’s the election next year and he hopes some good policies come out.

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