China forces Fonterra to make a major milk price correction

Compared to the first expected price announced in May, the milk price for the 2023/24 season will decrease by NZ $1 to NZ $7 per kilo of milk solids. This is considerably lower than the milk price for the last season that ended in June. The final milk price for the past season will be published in September, at the same time as the annual figures. This expected price is still at NZ $8,30. 

The expected price for the current season is the lowest level since 2018. According to Fonterra CEO Miles Hurrel, the correction is a result of the decreased Chinese demand for dairy. This mainly concerns whole milk powder. That is not a lie, because the faltering Chinese demand was also clearly reflected on the Global Dairy Trade. There, the price of whole milk powder rose by as much as 8% to US $2.864 per tonne. This is the lowest level since 2020.

Chinese demand drop
European dairy exporters are also suffering from the Chinese demand drop, but in New Zealand the dependence on demand is many times greater. In addition to the fact that China itself produces much more milk, the demand for dairy is under pressure. A faltering Chinese economy that is on deflation, is the cause of this. This also affects sales of drinking milk, resulting in much more powdering in China. European exporters of milk powder know first-hand that China is forced to feed its milk surplus to calves.

Bright spots
To probably cheer up the members of Fonterra, Hurrel also reports bright spots. By this he means the weakening milk production in exporting regions such as Europe and the United States. In New Zealand itself, the milk supply was not excessively large at the start of the new season in July. However, production will increase seasonally in the coming month.