Kelly Hodel/Stuff
Weaker global dairy prices have forced Fonterra to lower its farmgate milk payment to farmers.
Fonterra has lowered its forecast milk payment to farmers for this season as global demand weakens.
The co-operative on Monday pulled back its forecast for the 2022/23 season to $8 to $8.60 per kilogram of milk solids, from its previous forecast of $8.20 to $8.80 per kgMS. That reduced the midpoint of the range, which farmers are paid off, to $8.30 per kgMS from $8.50 per kgMS.
Global dairy prices have been weaker than anticipated as demand from the key Chinese market hasn’t rebounded as expected after Covid restrictions were lifted, while an increase in Northern Hemisphere spring production boosted supply.
“With these factors weighing on demand, prices have not increased to the levels required to sustain a higher forecast farmgate milk price for this season,” said Fonterra chief executive Miles Hurrell.
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As the country’s biggest milk processor, Fonterra’s milk payment is closely watched and sets the benchmark for other companies.
A lower milk price is going to further squeeze dairy farmers who are facing higher costs this season.
DairyNZ estimates the average dairy farmer would need to earn $9 per kgMS this season to break even.
Stats NZ data shows dairy farm expenses jumped an annual 17% in the December quarter as interest costs surged 43%, fuel costs were up 29%, fertiliser costs shot up 28% and feed costs gained 23%.
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Fonterra factors in fat and protein levels in milk when buying it off farmers.
Dairy farmer debt has increased over recent months, as debt repayments slowed and more farmers switched their loans to interest-only terms.
Hurrell said Fonterra recognised that the lower forecast milk price would impact on farmers’ businesses at a time when many were facing increasing costs.
To help with farm cash flow, the co-operative was adjusting its advance rate schedule, which is the proportion of the season’s farmgate milk price paid to farmers each month, to get cash to farmers earlier, he said.
Hurrell said Fonterra remained positive about the outlook for next season and planned to announce its opening forecast for the 2023/24 farmgate milk price next month.
The co-operative paid its farmers a record $9.30 per kgMS last season.
Dairy products are New Zealand’s biggest commodity export.
