Sunday, August 14, 2022

High prices look set to continue as dairy demand outweighs supply

Both Fonterra and Synlait have forecasted a $9/kg MS price for the season, with Fonterra paying its farmers an advanced rate of $5.40.

High global demand for New Zealand dairy products coupled with constrained supply has put dairy farmers in a strong position to tackle the many challenges facing the industry over the coming months.

Those two factors have seen two of the country’s biggest dairy companies announce record breaking opening milk price forecasts for the new milking season, which gets underway on June 1.

The start of the new season also coincides with World Milk Day, which was established by the United Nations in 2001 to recognise the importance of milk as a global food and celebrate the dairy sector.

Both Fonterra and Synlait have forecasted a $9/kg MS price for the season, with Fonterra paying its farmers an advanced rate of $5.40. It was not that long ago that payment was the actual milk price.

Fonterra’s current midpoint price for the season ending is $9.30/kg MS. The company’s chief executive Miles Hurrell pointed out this would contribute almost $14 billion to the NZ economy.

The sector has also been a major contributor in keeping the economy going as other major income earners faltered because of the covid-19 pandemic. According to the Ministry for Primary Industry’s December Situation and Outlook Report, dairy export revenues are forecast to increase by 10% to $20.9 billion in the year to June 30 2022, despite a forecasted fall in milk production this season. 

Driving this increase is a weakening in supply from key dairy exporting regions and strong demand for dairy from large importing nations such as China, it said.

Those high returns will be of immense help as farmers face increased costs across the board for fuel, fertiliser and supplementary feed.

These costs look likely to stay high over the medium-term as the war in Ukraine continues to play havoc with the global commodity market.

NZ farmers are also better buffered to withstand some of the economic and geopolitical headwinds facing the industry globally. 

Northern Hemisphere dairy farmers are unable to increase their production to capitalise on the good global prices because they too are facing the same cost pressures that NZ farmers are facing.

As a result, this wave of high dairy prices is likely to remain steady in that high band for the time being as supply cannot catch up to demand.

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