Higher milk supply depresses Fonterra milk price

The New Zealand Fonterra kicked off the 2018/2019 season with an ambitious forecast for the basic milk price. This was set at $7 per kilo of Milk Solid (MS), which is €29 per 100 kilos (at 4% fat and 3,3% protein). It is a milk price that would rank fourth from the top.

Milk price not too high?
The height of the milk price immediately resulted in a critical comment, because the dairy market had not yet given rise to such a high price. The latest Global Dairy Trade auction made this very clear. The bidding was lower for both whole milk powder (WMP) and butter, with butter even trading significantly lower. That is something caused by Fonterra increasing the offer.

The results of the Global Dairy Trade make it clear that the dairy supply is still too large, leaving little room for a high price. This has been confirmed by Fonterra with the reduction in the milk price. The basic price drops from $7 per kilo of MS to $6,75 per kilo of MS, a minus of 3,6%. Converted, the milk price (at 4% fat and 3,3% protein) amounts to €28,04 per 100 kilos.       

Too much milk
The cooperative states that Europe, the United States and Argentina managed to achieve increases in milk supply in the last quarter. It is stated that an increase of 1% in the United States represents 1 billion liters of extra milk. This increase coincides with a declining demand for whole milk powder and butter. 

"It's still early in the season," says Fonterra CEO Miles Hurrell. "A lot can change in the coming months. A drop in the milk price will be frustrating for our dairy farmers, but it is still important that we give them the facts. This so that they can make a well-informed decision for their business."

1 NZ dollar = €0,5692Fonterra's milk price has remained fairly stable over the years.

Main photo: Molly NZ / Shutterstock.com