Thursday, May 19, 2022

Frothy Fonterra milk prices start settling

Fonterra has lowered the amount it expects to pay farmer shareholders due to lockdowns in China, the economic crisis in Sri Lanka and the Russia-Ukraine conflict.

Fonterra has lowered the amount it expects to pay farmer shareholders due to lockdowns in China, the economic crisis in Sri Lanka and the Russia-Ukraine conflict.

The dairy giant now expects to pay between $9.10 and $9.50 per kilogram of milk solids versus its prior forecast of $9.30-$9.90/kg MS.

This reduces the midpoint of the range – which farmers are paid off – to $9.30/kg MS from $9.60/kg MS.

While it remains a record, it will reduce the payout by about $500 million to just under $14 billion.

Fonterra chief executive Miles Hurrell said recent events have caused short-term impacts on global demand for dairy products.

“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,” he said.

Average prices for whole milk powder (WMP), a key driver of the milk price, have dropped by 18% over the past four GDT events.

They fell 6.5% to an average of US$3916 (NZ$6114) a tonne in the latest auction last week.

“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,” Hurrell said.

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 dent production in the Northern Hemisphere, and Fonterra expects demand to recover as the short-term impacts begin to resolve, he said.  

However, while there is still a high level of uncertainty in global markets, the majority of Fonterra’s milk has been contracted for the season which is why it narrowed the forecast range, Hurrell said.

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