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Fonterra chief executive Miles Hurrell.
Farmers are being told to expect tight times ahead as the projected milk price was revised to a new mid-point range of $7 following the Global Dairy Trade (GDT) auction earlier this month.
Fonterra chief executive Miles Hurrell said that the revised price range reflected ongoing reduced import demand for whole milk powder from China.
"When we announced our opening 2023/24 season forecast in May, we noted it reflected an expectation that China's import demand for whole-milk powder would lift over the medium-term."
However, that was not the case, with GDT whole milk powder prices dropping 12%, with China's share tracking below average.
Additionally, Rabobank's August commodity outlook tells that July saw most prices (cheese, butter, etc.) below 5-year averages, with higher on farm costs and negative weather events having even more impact.
Rabobank senior agricultural analyst Emma Higgins said that compared to the same period in 2022, the farmgate forecast had weakened 24%, with all input costs raised 13%, with the biggest needle mover being interest rates at +50%.
"Markets are weak and challenging now. It will be painful for those going through this period of adjustment."
Otaio dairy farmer Ewen 'Horrie' Holliver, who runs 1,000 dairy cattle across 325 hectares, says that increasing costs have meant that margins are tight.
"We've got a bit of fat in the system from last year, but if it's still low next year there'll be a bit of blood on the ground. Just with the way wages are at the moment, we'll just have to keep paying their wages and take it off somewhere else."
Everyone's a bit worried, even the people I talk to in town. They're thinking 'if farmers aren't spending there's not going to be any money coming in, is there?'"
Hurrell and Higgins both said that the low GDT reflected a current surplus of fresh milk into China, resulting in elevated local production of whole milk powder and thus less need to import whole milk powder.
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.
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.
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