Strong production, tested demand send milk prices crashing
Strong global milk production and rebalancing of demand among key buyers has delivered one of the biggest drops in whole milk powder prices in recent years.
The co-op yesterday announced an opening average farmgate milk price of A$5.60/kgMS (NZ$6.30) for its Australian suppliers, who don't own shares in the co-op. in May Fonterra announced an opening forecast price of $5.25/kgMS for its New Zealand farmer shareholders.
It is also forecasting an average closing farmgate milk price range of A$5.80 – A$6.00 kg/MS for Australian suppliers in the 2015-16 season.
Fonterra says the price is on the basis of an anticipated recovery in global prices in the first half of 2016 and the continued softening of the Australian dollar.
"Our opening price and forecast closing range are more cautious than recent seasons. This reflects the challenging global market and our commitment to ensuring the price we offer is both competitive and deliverable."
Australia's dairy industry is highly competitive; Fonterra fights with the largest Australian dairy co-op Murray Goulburn and foreign-owned processors like Lion and Saputo for milk.
Unlike New Zealand, where Fonterra dominates the market, in Australia MG is the price setter.
Murray Goulburn this week announced an opening forecast price of A$5.60/kgMS and available weighted average Southern Milk Region farmgate milk price (FMP) of $6.05/kgMS.
If MG suppliers receive total farmgate returns in excess of $6.00 /kgMS this year, it will a record third consecutive year the payout's touched A$6/kgMS.
However, MG says the forecast full year FMP remains subject to changes in external factors such as global dairy commodity prices and prevailing exchange rates. It assumes an average Australian dollar of US76cents during the FY16 financial year and certain assumptions regarding commodity prices and other risk factors.
