Due to several recent events which have resulted in short-term impacts on global demand for dairy products, Fonterra Co-operative Group Limited has revised its 2021/22 forecast Farmgate Milk Price range from $9.30 - $9.90 per kgMS to $9.10 - $9.50 per kgMS.
This reduces the midpoint of the range, which farmers are paid off, from $9.60 per kgMS to $9.30 per kgMS.
Fonterra CEO Miles Hurrell explained that the lockdowns in China due to COVID-19, the economic crisis in Sri Lanka and the Russia-Ukraine conflict were the main causes for the revision.
“While the long-term outlook for dairy remains positive, and we expect global demand and supply to be more balanced over the rest of the year, we have seen these short-term impacts flow through into pricing on the Global Dairy Trade (GDT) platform. For example, average prices for whole milk powder (WMP), a key driver of the milk price, have decreased by 18 percent over the past four GDT events,” said Hurrell.
“As an exporter to 140 countries we deal with these kinds of global events all the time, but right now we’re seeing the impact of multiple events. Coupled with inflationary pressures, it’s not surprising to see buyers being cautious.
“Our scale and ability to move products between different markets and categories remains important and reinforces our strategic focus on ensuring our milk is going into the highest value products.”
Hurrell noted that this will be disappointing for its farmers, but the change in global dairy prices is coming off record high levels. At a midpoint of $9.30 per kgMS, this would continue to be the highest forecast Farmgate Milk Price in the Co-op’s history and would see it contribute almost $14 billion into New Zealand’s economy through milk price payments, which supports the wellbeing of local communities.
“Looking out to the rest of the year, global milk production is expected to remain constrained as high feed, fertiliser and energy costs continue to impact production in the Northern Hemisphere, and we expect demand to recover as the short-term impacts begin to resolve,” continued Hurrell.
“While there is still a high level of uncertainty in global markets, most of our milk has been contracted for the season. It’s for this reason that we’ve made the decision to narrow our forecast range to +/- 20 cents.
“As always, there are a number of risks we are continuing to keep a close eye on, including potential impacts on demand from inflationary pressures and rising interest rates, increased volatility as a result of high dairy prices, and further disruptions from COVID-19 and geopolitical events.”