Fonterra lifts 2020/21 forecast farmgate milk price

New Zealand dairy co-op Fonterra has narrowed its 2020/21 forecast farmgate milk price range on the back of strong demand in China.

Fonterra CEO Miles Hurrell said the co-op has narrowed and lifted the bottom end of the forecast farmgate milk price range from NZ$6.30–$7.30 per kgMS to NZ$6.70–$7.30 per kgMS.

“This means the midpoint of the range, which farmers are paid off, has increased to NZ$7.00 per kgMS,” he said.

“China is continuing to recover well from COVID-19 and this is reflected in recent Global Dairy Trade (GDT) auctions with strong demand from Chinese buyers, especially for whole milk powder, which is a key driver of the milk price.”

Hurrell said the impact of COVID-19 continues to play out globally, and the company continues to keep a watchful eye on the increasing Northern Hemisphere milk production and New Zealand dollar.

“However, we have contracted a good proportion of our sales book for this time of the season, which has given us the confidence to narrow and lift the bottom end of the forecast farmgate milk price range.

“Our forecasts would see the co-op contribute around NZ$10.5 billion to the New Zealand economy this year.”

Fonterra has a unique position in the New Zealand dairy industry with 95% of the country’s milk production exported through the company.

As a result of this monopolisation, there is no market price set through competition supply.

Fonterra instead calculates a farmgate milk price using an independent algorithm to formulate the price range.

Despite this, the price range is still dependent on international factors.

The farmgate milk price has been steadily increasing over the year.

The price range was at a low $5.40–$6.90 in May after the pandemic forced a volatile and uncertain market.

But the outlook of the global dairy industry has since recovered with Hurrell describing it in October as “more balanced”.

Hurrell said in the December forecast that COVID-19-related challenges remain, including how the global recession and new waves of the virus will impact customer demand, and there is some congestion in global supply chains that the company is actively managing.

“There is also continued uncertainty around what could happen to the price difference between the products that determine our milk price and the rest of our product range in the second half of the year,” he said.

“We will continue to monitor the situation and, as the year progresses and we have more certainty, we would expect the forecast earnings range to narrow.”

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