Fonterra cuts milk price forecast on slack China demand

Fonterra has cut its farmgate milk price forecast. Photo / Supplied

Fonterra has cut its 2022/23 season forecast to a range of $8.00 to $8.60 per kg of milk solids.

This reduces the midpoint of the range by 20 cents from $8.50 to $8.30 per kg.

Chief executive Miles Hurrell said the change reflected short-term demand for products that “inform” the milk price being softer than expected.

“Since our last update in February, prices for our products on Global Dairy Trade have either declined or remained flat,” Hurrell said.

Skim milk powder prices have fallen 7 per cent since February, and whole milk powder prices have not lifted to levels assumed in the previous forecast.

Hurrell said there were two main drivers behind this.

“The first is demand from China for whole milk powder has not yet returned to expected levels,” he said.

“The second is Northern Hemisphere milk production, and therefore skim milk powder stocks, are increasing as they head into their spring flush.

“With these factors weighing on demand, prices have not increased to the levels required to sustain a higher forecast Farmgate Milk Price for this season.”

Fonterra recognised the change had an impact on ts farmers’ businesses, at a time when many face increasing costs.

To assist on-farm cash flow, Fonterra has adjusted its advance rate schedule, which is the proportion of the season’s farmgate milk price paid to farmers each month, to get cash to its farmers earlier.

The co-op has increased the March and April payment and plan to hold payments at that level until June.

“We are able to do this because of the strength of the Co-op’s balance sheet, which is further supported by our strong full year earnings forecast,” he said.

Fonterra’s full year forecast normalised earnings of 55-75 cents per share remained unchanged.

“We remain positive about the outlook for next season and will share our opening 2023/24 Farmgate milk price forecast in May,” Hurrell said.