Fonterra dairy farmers on track for record milk price; with an economic boost of $ 13 billion
Miles Hurrell, chief executive of Fonterra, said the increase in the farm gate price range for 2021/22 is the result of continued demand for New Zealand dairy products relative to supply.
Fonterra has increased its forecast for milk payment to farmers for this season to match its previous record as demand for dairy continues while supply tightens.
The co-op raised and reduced its range of on-farm milk prices for the 2021/22 season to between $ 7.90 and $ 8.90 per kilogram of milk solids, from $ 7.25 to $ 8.75 per kgMS.
The midpoint of the range, which farmers are paid, has increased to $ 8.40 per kgMS, from $ 8 per kgMS. This would match the previous record paid in the 2013/14 season and see nearly $ 13 billion flowing into the New Zealand region.
New Zealand is heading towards its peak milk production period in late spring and production so far is lower than last season, limited by bad weather and limited expansion. Milk production is also low elsewhere, due to bad weather and high feed costs. At the same time, demand is maintained and Fonterra seeks to shift more of its milk to products with higher added value, thus increasing profitability.
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âWe have seen demand from China decline over the past two months as other regions have stepped in to keep demand strong,â said chief executive Miles Hurrell. âOn the supply side, overall growth in the global milk supply is expected to remain below average levels, due to a slowdown in US production due to rising feed costs.
Fonterra takes the levels of fat and protein in milk into account when purchasing it from farmers.
“These supply and demand dynamics support current price levels, and a higher contract rate has allowed us to narrow the forecast range.”
Yet higher milk prices, while beneficial to farmers, can reduce the profit margins of milk processors like Fonterra, unless they can sell their products at higher prices.
Hurrell said that while the increase in the price of milk may put pressure on the co-op’s input costs, Fonterra remains comfortable with its current range of profit forecasts for 2021/22 of 25 to 40 cents per year. action.
However, he noted that it was still early in the season and that a lot could change.
Increased volatility was more likely when prices were high and that is why the cooperative maintained a range in its milk price forecast, he said.
The cooperative was keeping an eye out for things that might impact demand, including Covid-19, inflationary pressures, exchange rate volatility and weather conditions as well as the effect of any geopolitical issues, he said. -he declares.
Fonterra’s advance rate program spreads the risk of fluctuations in world dairy prices during the year by dividing payments to farmers based on the expected price of milk at farm gate. Without the plan, the co-op would need more equity.
As of July 31 of each year, the cooperative has paid 85 percent of the expected milk price to suppliers. After the announcement of the annual results in September, a clean-up is carried out on the basis of the actual results. Farmers receive three retrospective payments of 5 percent each in August, September and October.