Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
He says New Zealand butter and skim milk powder are attracting premiums of $500/tonne more than European products right now and it’s all down to the sustainability credential of NZ milk.
“Our pasture-based systems, our high standards on animal welfare and our sustainability stories are starting to be recognised around the world,” Hurrell told Rural News.
“Farmers, supported by the co-op, now have farm environment plans.”
He says countries are willing to pay a premium price for NZ milk because they are beginning to see and hear about what our farmers are doing.
Last week’s Global Dairy Trade results reflect the demand for NZ products: anhydrous milk fat (AMF) prices jumped 17%, skim milk powder (SMP) 7% and butter 4.6%. AMF and SMP are mixed to make reconstituted full cream milk in some countries.
Hurrell says it’s pleasing to see growing consumer demand for NZ products around the world.
Westpac senior agri economist Nathan Penny says milk fat prices are on a boom. He says that AMF and butter prices have both surged over the last four months; AMF and butter prices have jumped a whopping 38% and 44%, respectively.
“This is a key development as it demonstrates that demand for products consumed in restaurants and other food service settings has returned,” he says.
Commentators also agree that demand for dairy products is likely to hold up well, through to the end of the season.
ASB economist Nat Keall says solid purchases from China have anchored price gains at recent auctions.
“With the latest Chinese gross domestic product figures showing a decent lift, there is little reason to think that story will change,” he says.
Keall notes that a slightly tighter supply outlook is another price support.
“November dairy production already showed a little bit of a slowdown, and with drought hitting parts of the upper North Island there is still the prospect the next data releases could show further deceleration in the last few months of the season.
“Production in the EU is also falling, led by lower volumes in France and Germany, so global supply is set to tighten.”
BNZ’s Doug Steel adds that soaring feed prices for Northern Hemisphere farmers could impact milk production, thereby applying more upward pressure on milk prices.
Steel says corn and wheat prices, which constitute as feed input costs for European and American farmers, could affect milk output.
In New Zealand, there is also some concern about dry weather impacting milk production, he says.
Steel notes that a weakening NZ dollar will also boost export returns.
Next Season
While this season's milk price is soaring, there are some concerns about what next season may have in store for farmers.
BNZ's Doug Steel believes the weakening NZ dollar and growing global demand sets up well for next season.
While he admits there's a long way to go, Covid could also end up helping push prices up.
After causing prices to fall during lockdowns, Steel says Covid-related lockdowns have begun impacting milk production in Europe. Freight and logistics have also taken a hit during the pandemic.
With NZ offering safe products, Steel says more buyers are willing to pay a premium for NZ milk.
However, the NZ currency could play a bigger part in setting next season's payout.
ASB's Nat Keall says given Fonterra's hedging policies and the timeframes involved, the flight of the kiwi dollar will have little influence on the final farmgate price for this season.
"The NZ dollar's recent strength is likely to be more of an influence on next season's milk price, so farmers should prepare to take a bit more of a hit from the dollar's strength in the 21-22 season," he says.
