Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
Last month, Fonterra lifted its forecast farmgate milk prcie mid-point to $8.50/kgMS and unveiled a new forecast range of $7.75 to $9.25/kgMS.
ANZ came out a few days later, raising its forecast milk price to $9/kgMS, which if achieved, will be the second-highest milk price on record.
The previous record was the 2021-22 season milk price of $9.30/kgMS.
The higher dairy prices can be attributed to factors such as little or no increase in milk production around the globe, including China, and firming demand. As usual, China remains the key.
Earlier this year, Chinese dairy purchases were at a 12-year low. There have been large increases in Chinese domestic dairy production, spurred on by the Chinese government. However, higher production costs and lower prices are slowing China's domestic milk production.
This has seen China come back to the Global Dairy Trade and buy a little bit more.
There's also talk that the Chinese government might encourage some dairy herd reduction to boost farm gate prices, which could lead to some additional imports.
For New Zealand farmers, things are looking up, however, higher interest rates remain a major challenge.
The average breakeven price assessed by DairyNZ for last season is $7.93/kgMS. The average breakeven price ofr the 2024-25 season is expected to creep back up to $8.07/kgMS with increased debt repayments and tax.
A $9 milk price will provide much-needed relief to farmers. For some it may prompt a little more spending on items such as repairs and maintenance, particulalrly work deferred due to low returns.
Still, the 2024-25 season has another nine months to run. Volatility will remain, but there is a good chance of prices firming.
