Dairy farmer profits to hit record levels in 2025
The profitability of dairy farmers is likely to increase in the coming year, accordign to the latest report by the Ministry for Primary Industries (MPI) on the outlook for the primary sector.
Fonterra’s GlobalDairyTrade weighted index was down 4.5%, with every commodity down, in almost every position: the exception was skimmed milk powder for April shipment – the only commodity offered for that period – which was up 1.1%.
Milk protein concentrate (MPC) plummeted 15%, rennet casein 12.9%, cheddar 11.3% and anhydrous milk fat 9.5%. Whole milk powder slipped 2.6% to average US$3316, while skimmed milk powder eased 2% to average US$3125.
“This one is meaningful and material,” BNZ economist Doug Steel told Dairy News. “Meaningful in that it wasn’t driven by movements in the US dollar or New Zealand dollar: both were pretty much where they were at the last auction, which means it’s a genuine drop in dairy markets; and material in that the market had been in a relatively stable, 5% range since August. It’s now dropped below that range and those demand and supply pressures are taking hold.”
In the case of demand, it’s reducing in line with slowing global GDP growth, notably China where last year the economy grew at 8.9%, down from 9.2%, and the first economic figures for this year are “even softer”, notes Steel.
“In a large part that is by the design of the authorities... the question is at what point will it level out. They’ve lowered their growth target from 8% to 7.5%.”
Meanwhile global milk supply has “ramped up” in response to recent firm prices.
“You get the sense the milk supply is still coming. The February numbers in the US were very strong, even after accounting for the extra day; likewise in the EU and Australia.”
With New Zealand’s production pumping through autumn, Steel’s feeling is “there’s a bit more downside.”
Consequently
forecasts for next season will be lower than Fonterra’s recently revised forecast for this season, says Steel. “But what the figure will be is pie-in-the-sky
at this stage.”
Fonterra shaved 15c/kgMS off its 2011/12 milk price forecast earlier this month to $6.35/kgMS, leaving the dividend profit forecast at 40-50c/kgMS. The first forecast
for the coming season
is typically made in late May by Fonterra.
