$8 not a done deal!

Two milk processors – Fonterra and Open Country Dairy – currently have a mid-point of $8/kgMS. Synlait also came out last week with an $8 forecast milk price for the season that started June 1.

Fonterra Co-operative Council chair John Stevenson says farmers will be looking carefully at their budgets heading into the new season.

“Fonterra has told farmers that this forecast reflects an expectation that demand from China for whole milk powder will lift over the medium term, but that the timing and extent of that is uncertain,” Stevenson says.

Fonterra has opened with forecast price range of $7.25 to $8.75/kgMS. Open Country, which pays its suppliers in full four times a season, is forecasting $7.80 to $8.20/kgMS for milk supplied between June and September and paid in full in November.

Synlait notes that reaching this season’s forecast milk price requires an improvement in commodity prices from current levels throughout the season, which will require increased global demand.

After peaking in March 2022, dairy commodity prices have trended significantly downward with robust improvements in global production currently outweighing the first signs of increased demand, before appearing to find a floor around current levels.

Synlait chief executive Grant Watson says its farmer suppliers have received, on average, $0.28/kgMS in premiums above the base milk price for the last two seasons. He is forecasting to pay similar premiums for the next two seasons.

“We maintain a market-leading position in this space, which creates increased options for our farmers supplying Synlait’s world-class facilities in Dunsandel and Pokeno, enabling us to work with our farmers to add more value to the milk we receive. We are committed to delivering a competitive milk price.”

Fonterra chief executive Miles Hurrell says its opening forecast reflects an expectation that China’s demand for whole milk powder will lift over the medium term.

“We expect demand to gradually strengthen over the course of FY24 as China’s economy continues to recover from Covid-19.

“However, the timing and extent of this remains uncertain, with China’s in-market whole milk powder stocks estimated to be above normal levels following increased domestic production. This is reflected in our wide opening forecast range for the season.

“We recognise the pressure farmers are under and have designed a new Advance Rate guideline to get cash to farmers earlier in the season.”

Stevenson notes new Advance Rate schedules will be appreciated by Fonterra farmers.

“It shows that board and management have heard council and farmer feedback that the co-op needs to get more cash to farmers earlier.”

ASB economist Nat Keall remains cautions on the outlook for the Chinese economy, noting that April data was lower than expected.

He believes farmers should budget on “a price with a ‘7’ handle on it”.

“We still expect a milk price at or below the bottom of Fonterra’s forecasting range. We are cautious on the outlook for the Chinese economy, with April data printing below market expectations.”