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.
The co-operative last week announced a new range of $6.30 to $7.30/kgMS with a new midpoint of $6.80/kgMS. The revised forecast comes just a month after Fonterra announced its annual results.
BNZ senior economist Doug Steel told Rural News that he’s not surprised by Fonterra’s announcement, as “underlying tones” in the dairy markets have been improving in recent weeks.
In the latest Global Dairy Trade (GDT) auction, the price of flagship whole milk powder price topped US$3,000/metric tonne. The New Zealand dollar has also stabilised.
Steel says a stable NZ dollar and strong demand for WMP normally provides upward pressure on the payout.
However, he says the wide range of Fonterra’s forecast payout means “anything could still happen”.
“There’s a wide range of possible outcomes, we are seeing so much uncertainty lingering around...anything could still happen, but for now we are seeing better prices.”
Steel says New Zealand’s close attachment to China, especially in terms of selling them dairy products, is paying dividends.
“They were first in, first out of Covid and the strong demand for WMP there gives us hope going forward.”
Fonterra chief executive Miles Hurrell says the stronger 2020-21 milk price forecast is largely being driven by improved demand in China. He says at a $6.80 milk price, more than $10 billion would flow into regional New Zealand.
