Wednesday, 06 September 2023 12:55

Editorial: Peak milk while market is weak

Written by  Staff Reporters
Fonterra’s latest announcement – bringing the season’s mid-point down to $6.25/kgMS – is a worrying sign. Fonterra’s latest announcement – bringing the season’s mid-point down to $6.25/kgMS – is a worrying sign.

OPINION: Not so long ago, a payout starting with a six would have been happily accepted by the dairy sector.

Today – with input inflation running rife and interest rates showing no signs of abating – a payout starting with eight is the new norm.

That’s why Fonterra’s latest announcement – bringing the season’s mid-point down to $6.75/kgMS – is a worrying sign.

Last season, dairy farmers produced 1.39 billion kgMS, so with the midpoint dropping $1.25 that is almost $1.8 billion not coming into the country’s economy. And this doesn’t just affect Fonterra suppliers. Other milk processors are also facing the heat. NZ’s peak milk season could make things worse.

The key driver of the weak short-term price outlook is weak Chinese demand, noting that China is comfortably our largest dairy market.

Unlike most economies post their Covid lockdowns, China’s post lockdown bump in economic activity has underwhelmed expectations.

Analysts have cut their outlook for Chinese economic growth for 2023 from 6.2% in June, to 5.7%, and then to 5.2%.

Many dairy farmers are bracing for losses and making changes to the way they farm, and hoping the market will rebalance.

Global milk supplies are subdued and very likely to contract further as farmers globally are not making money at current farmgate prices.

Any tightening in supply will help rebalance the market, but we are now heading into peak seasonal supply for the Southern Hemisphere dairy-exporting nations.

New Zealand’s spike in milk supply in the coming months means there will be more product to sell in the near term, while the market is still weak.

Ironically, this could lock in a payout starting with a six.

More like this

Fonterra R&D: Innovation needs more than just PhDs

Common sense and good human judgement are still a key requirement for the super highly qualified staff working at one of New Zealand's largest and most important research facilities - Fonterra's R&D Centre at Palmerston North.

Featured

$52,500 fine for effluent mismanagement

A Taupiri farming company has been convicted and fined $52,500 in the Hamilton District Court for the unlawful discharge of dairy effluent into the environment.

Ospri brings Bovine TB testing in-house

The move to bring bovine TB testing in-house at Ospri officially started this month, as a team of 37 skilled and experienced technicians begin work with the disease eradication agency.

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

It's all about economics

OPINION: According to media reports, the eye-watering price of butter has prompted Finance Minister Nicola Willis to ask for a…

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter