Open Country Dairy Expands Butter Production with New Plant
The country's second largest milk processor, Open Country Dairy, is building a butter plant at its Awarua site in Invercargill.
Open Country Dairy suppliers can now expect their next milk cheque, in March, to be between $7.80 and $8.10/kgMS. In December, the company had a forecast range of $8.30 to $8.60/kgMS for milk supplied over the past two months.
For its May period - milk supplied between February and May - Open Country is forecasting a milk price range of $8 to $8.30/kgMS, a drop of 30c compared to its previous forecast.
OCD chief executive Steve Koekemoer says demand has remained low, which has resulted in market prices continuing their decline over recent weeks.
"Although somewhat expected, it has dragged on longer than anticipated," he explains.
"It seems we may have reached the low point now. Because of the extended recent decline and slow recovery, we have had to align our milk price forecast with our updated market view."
Koekemoer expects some price recovery later in the season. But rather than being overly optimistic, OCD has taken a modest late season recovery into consideration at this stage, he says.
"Clearly, if the price recovery is stronger than forecasted, we will see some further upside."
Dairy exporters are banking on a recovery in the Chinese market where Covid-related lockdowns have impacted demand. But the signs aren't good.
ASB, which was forecasting $9.40/kgMS milk price for this season, has now revised it down to $8.65/kgMS. The bank's economist Nat Keall notes that dairy prices have failed to gain ground over the summer, despite the reopening of the Chinese economy.
The Chinese economy will recover some ground this year, but weaker demand elsewhere should weigh on commodity prices, he says.
"Dairy prices have had a pretty unspectacular summer," he says.
Chinese buyers have been missing in action for most of the season.
Keall believes the combination of strong milk production earlier in the year and wide scale disruption in consumption patterns has meant Chinese milk inventories have spent the bulk of the season in good health.
"The proportion of whole milk powder (WMP) purchased at auction has fallen from 50-80% in 2021 to only around 20-50% over the past 12 months.
"Chinese purchase volumes have typically fallen more markedly than overall offer volumes," he explains.
"As of now, seasonal purchase volumes are running at four-year lows. Not much has changed on that front, with Chinese demand still noticeably absent over the December and January auctions."
China abandoned its zero-Covid policy back in the beginning of December, easing some restrictions on the food-service sector and the movement of people.
Westpac is sticking to its forecast milk price of $8.75/kgMS for this season. Fonterra narrowed its forecast milk price range last year to $8.50 - $9.50/kgMS, with a midpoint of $9/kgMS.
