These 3 things depress the milk price according to Fonterra

The New Zealand dairy cooperative Fonterra is tempering expectations for the milk price for the coming season. There is great uncertainty after the coronavirus outbreaks. But there are more bleak reasons. 

In an email to the approximately 10.500 member dairy farmers, chairman John Monaghan says that the corona crisis will probably have an impact on the global economy and therefore on the dairy market until mid-2021. A sloppy 90% of the dairy that Fonterra sells is destined for the world market. The consequences of a possible economic crisis will undoubtedly hit the dairy cooperative hard. 

Higher milk supply and volatile exchange rates
Fonterra will announce the milk price forecast for the 2020/21 season in May, but expectations are already being tempered considerably. In addition to the uncertain global economy, the forecast also takes into account the higher milk supply in Europe and Latin America. This could potentially upset the balance between supply and demand. Also the volatile exchange rates are mentioned. 

Although it is not immediately described as such, it is clear between the lines that the members will have to take a lower milk price forecast into account in the coming season. It is however called upon to in any case be careful with business decisions such as investments 

Sold a lot in advance
For the current season ending in June, the milk price forecast remains at $7 and $7,60 per kilo of milk solids (approximately 11,5 liters of milk). This is the highest level since 2013. The fact that this price can remain relatively good is because Fonterra says it has already pre-sold a lot of dairy on contract. The cooperative is cautiously positive about China, because after the recent dip, the sales are back to ‘normal’.

Wouter Job

Wouter Baan is Head of Meat & Dairy at BoerenbusinessAt DCA Market Intelligence, he focuses on dairy, pork, and meat markets. He also monitors (business) developments within agribusiness and interviews CEOs and policymakers.

w.baan@boerenbusiness. Nl

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