AgriHQ dairy analyst Susan Kilsby said farmers now faced two consecutive seasons of extremely low milk prices. Another decline will push spot pricing into the high-$2/kg MS as New Zealand’s peak seasonal supplies are to be sold.
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New Zealand future prices are indicating another 6% fall, although it is hard to gauge with some prices not being provided at the last auction.
Dairy markets have taken another step away from recovery, after global prices fell heavily and British farmers’ returns were cut again.
Dairy prices slumped to a 12-year low at this week’s GlobalDairyTrade auction amid a global glut, hurting New Zealand farmer incomes and threatening to curb economic growth in the nation that relies on dairy for a quarter of its export earnings.
Whole milk powder prices have dropped to their lowest level since 2008, putting more downward pressure on Fonterra’s farmgate milk price forecast and reinforcing the market view that the Reserve Bank will cut interest rates twice this year to partly compensate.
“The key aims of the review are to ensure that the co-operative is best placed to successfully deliver its strategy, increase focus on generating cash flow, and implement specific, sustainable measures for enhancing efficiency”, Fonterra CEO Theo Spierings said in a statement. The loan will amount to an additional 50 cents per shared-up milk solids for production for the season. However, he conceded that the low milk price had already resulted in a drop in milk collections.
Fonterra will pay farmers $NZ3.
He said farmers can do that by minimising their inputs, and maximising their outputs. Its farmers are more exposed to the troubled world dairy market than Australian farmers, who mainly supply for the domestic market.
“The outlook is tough but this is the time to apply some science and really examine the options”.
The seasonal conditions we are going to face going forward are unknown but it’s likely that production will be down this year.
In the 2013/4 year, high milk prices – which represent an added cost to Fonterra’s manufacturing inputs – helped drive Fonterra’s net profit down to $179m from $736m in the previous year.
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The cooperative cut its forecast total payout available to its members to NZ$4.25-4.35, with the farmgate milk price standing at $3.85 per kilogram of milk solids.
