Fonterra this morning boosted its farmgate milk price by 50 cents to NZ$5.25 per kilogram of milk solids, which means almost an extra NZ$1 billion in revenue nationally and US$78,980 for the average New Zealand dairy farmer. It also brings the price to 20c above the break-even of NZ$5.05 calculated by industry group DairyNZ.
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This is based on its forecast earnings per share in the 50 to 60 cent range in FY17.
Dairy product prices rose at the Global Dairy Trade auction, though gains fell short of expectations as whole milk powder prices unexpectedly moved lower (scroll down for charts). Although demand remains stable.
The New Zealand milk co-operative, which is owned by about 10,500 farmers, controls almost a third of the world dairy trade.
“With an extra 50 cents in hand, they (farmers) are unlikely to rush out and start spending again”.
Dairy prices have risen almost 32 percent since August, and are at their highest level since March 2015. Milk production in the European Union for 2016 is beginning to flatten out and our New Zealand milk collection is now more than 3% lower than last season.
“The result, particularly for wholemilk powder, is disappointing, as we have recently been seeing good momentum in dairy commodity prices”, it said. A total of 35,086 tonnes was sold at the latest auction, falling 4.5 percent from the previous one. Sliding prices have put farmers under pressure, with more than 85 percent estimated to be operating below breakeven levels.
Local dairy companies have raised their forecast payouts for the current season to $NZ5 a kilo of milk solids or higher because of the higher prices. However Williams said the rally looked to be more sustainable than previous upturns over the last two years.
“The GDT is a volatile market so discrepancies are not unheard of”, says Mr Handley.
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“These four consecutive increases have been fantastic through the most hard part of the season has just given them that sense that there is a rainbow on the horizon”.
