Wednesday, 21 February 2018 07:55

Less milk, fewer products – better prices

Written by  Sudesh Kissun
 Fonterra chair John Wilson says the co-op’s forecast milk intake is down 3.6% on last season. Fonterra chair John Wilson says the co-op’s forecast milk intake is down 3.6% on last season.

Falling milk production due to weather constraints has forced Fonterra to reduce sales volumes across its entire product range.

Milk production in New Zealand was down 6% last December on the same month in 2016.

Fonterra chairman John Wilson told a Northland Dairy Development Trust Conference this month that the co-op’s forecast milk intake this season is 1.48 billion kgMS, down 3.6% on last season.

“Let me remind you that last year we had a favourable late summer and autumn; we don’t expect that this year,” he said.

Wilson said the first six days average milk collection in February was 8% down on February last year.

“We’ve had great rain but we are struggling to get milk production up,” he explained.

“We’ve had to reduce our sales volumes across our entire product portfolio; the last thing you want is to be in a position where you don’t have product to sell as prices move up.”

In December, Fonterra revised its farmgate milk price to $6.40/kgMS – a drop of 35c. Forecast earnings were also reduced by 10c/share to a range of 35c to 45c, mostly due to the Danone arbitration decision where the co-op was fined $183m.

Wilson says the milk price downgrade was “a conservative decision”.

“On the milk price side we know demand has been sustained particularly out of China, across Asia and Latin America,” he added.

“Our milk price revision at the time reflected the mixed picture in our global markets and especially the good production achieved in Europe, South America, the US and Australia.”

 Wilson points out that much analysis goes into these forecasts. 

“With that is always a large factor of supply potentially affecting future pricing… and of course the markets have been watching.”

The last three consecutive Global Dairy Trade auctions have all gone up.

Whole milk powder price is sitting at US$3200/tonne, reflecting that the market is fundamentally balanced, said Wilson.

BNZ senior economist Doug Steel agreed. He told the conference that a milk price of $6.40/kgMS looks a lot more achievable now.

Steel noted that WMP prices were up 13% in the three auctions this year.

“It’s pretty much a recognition that NZ weather has been awful; clearly the markets recognised that it had been dry from November to December,” Steel said.

More like this

Cynical politics

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.

Why is butter so expensive in New Zealand? Fonterra explains

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.

Featured

Why is butter so expensive in New Zealand? Fonterra explains

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.

National

Machinery & Products

» Latest Print Issues Online

The Hound

Trop de Paris!

OPINION: Your old mate's ear has been chewed off recently by farmers voicing their displeasure with the National Party, particularly…

NZ vs Aussie beef

OPINION: Your old mate hears that at a recent China Business Summit, PM Christopher Luxon delivered a none-too-subtle "could try…

» Connect with Rural News

» eNewsletter

Subscribe to our weekly newsletter