Inside Milk
Fonterra is counting on a relatively high milk price
Fonterra has again commented on the milk price for the 2019/2020 season. The relatively high prognosis, which was announced earlier, will remain intact for the time being.
Read this article?
Become a subscriber and get instant access
Choose the subscription that suits you
The New Zealand dairy cooperative expects a milk price of between $6,25 and $7,25 per kilo of milk solids (approximately 11,5 liters of milk) for the current season, which started in June and ends in May. The provisional price has been set at $6,75 per kilo of milk solids. Only in 2007, 2010 and 2013 did the basic milk price end at a higher level.
The dairy company will only later provide an indication of the dividend, which is comparable to FrieslandCampina's performance bonus. By the high loss rates For the first time, no dividend was paid out for the past season. This indicates that a subsequent payment is no longer a given.
Deviation from forecast
Last year, Fonterra opened the season with a milk price forecast of $7 dollars per kilo of milk solids. However, due to deteriorating global market conditions, the payout price fell to $6,30 to $6,40 during the season. The final milk price will not be announced until mid-September, when the annual figures are presented.
During the season, the dairy cooperative adjusts the milk price forecast every 2 months. The price range will be reduced as market conditions become clearer. John Monaghan, the chairman of the cooperative, says it is a significant challenge to give an indication of the milk price so early in the season. According to him, at the beginning of September only 2% of the expected milk supply actually collected for this season.
Although the global dairy market appears to be reasonably balanced, determining the milk price forecast is not without risk, according to Monaghan. For example, there is uncertainty about the price development of milk fat. In addition, China has devalued its currency as a currency weapon in the trade war. This affects Chinese purchasing power, which could slow New Zealand dairy exports (particularly whole milk powder).
Westland and Synlait
Also other New Zealand dairy processors such as Westland, recently part of it Chinese Yili, and the listed Synlait have presented the milk price forecast for the 2019/2020 season. These are fairly in line with those of Fonterra. For example, Westland expects a milk price of $6,75, while Synlait's forecast is $7,00 per kilo of milk solids.
* This article uses New Zealand dollars.