Otago dairy farmers are marvelling at the trajectory of a milk price entering record territory at $10 a kilogram of milksolids.
Fonterra’s 50 cents increase yesterday for a new forecast range of $9.50/kg-$10.50/kg puts the midpoint at $10/kg to lift spirits for the 2024/25 season.
That’s on the way to easily eclipsing the highest end of season result of $9.30/kg set in 2021-22 – should there be no deviation for the rest of the season.
The co-op pointed to the ongoing strength of the global market for the rise.
At this stage, Fonterra’s $10/kg midpoint lines up with forecasts of $9.50/kg by Canterbury-based Synlait, while Westland Milk Products is on the record as paying suppliers a 10 cent premium above Fonterra’s payout the next two seasons – so $10.10/kg – and this week Taupo-based Miraka flagged a $9.60/kg midpoint.
High paying Tatua from Waikato and other processors such as Open Country and Oceania Dairy have yet to show their hand.
Federated Farmers Dairy North Otago president Myfanwy Alexander said the payout lift was welcome news.
‘‘It’s no secret that input costs have been rising very heavily over the past few years, especially costs such as staffing which are spiralling out of hand, and so a little bit more fat in the system will be fantastic.
“It will be great to pay down some debt and a real chance to get some capital work done on farms and just start to get ahead a little bit. It will also be a welcome boost for those areas in the country like down south, where things have been pretty average.
“For the likes of North Otago and Canterbury we have just been quite lucky, really.’’
She said the break-even point would be more than $8/kg for most dairy farmers so the buffer would be well received.
‘‘Things are looking quite strong and I would say Fonterra would not put that out there unless they are pretty confident it’s going to happen or more. Record levels always get everyone excited, but then you have to remember record costs as well and the break even has jumped $2/kg in the last few years so we need that record payout.’’
Miss Alexander, who is a dairy farmer near Duntroon, said it would be interesting to see how the negotiations of new contracts for next year were progressing.
‘‘For a contract milker it doesn’t really have any impact, but for the sharemilkers it will be great and a good chance to get a little ahead.’’
She said the overseas conditions farmers were seeing suggested a positive outlook for this season.
Farmers would be wary of local services upping their prices during a record payout, she said.
‘‘They 100% will and they never drop back when the payout drops back. You can’t blame the services as they need to make money too I guess – it’s all a big moosh as [everyone] tries to chase the dollar. But hopefully there will be a bit of a chance for people to get ahead of some debt.’’
All farmers could wish for now was more rain before Christmas, she said.
North Otago milk growth is up about 1.5% for milksolid kilograms produced per day.
Last month, Canterbury’s milk production was ahead by 5% with farmers believing Mid Canterbury was closer to 7%.
Fonterra chief executive Miles Hurrell said the recovery of greater China demand as domestic milk production rebalanced had combined with strong demand from Southeast Asia.
“Looking at supply, milk production out of the United States and Europe continues to be impacted by local factors, while production out of most regions of New Zealand has increased.
“We’re continuing to monitor factors that may influence global supply and demand dynamics, including any potential impact from heightened geopolitical uncertainty.’’
The last GlobalDairyTrade auction on Tuesday increased 1.2% for an overall average price of nearly $4200 a tonne.
That’s the third rise in a row for the dairy auction with the chief indicator of wholemilk powder up 4.1% to $3984, although other products were back slightly including a 5.2% drop for butter at $6680.
Another window into overseas demand will open up at the final auction for the year on December 17.
Rabobank expects rising farmgate milk prices and improving dairy margins to contribute to increased global milk supply next year.
The bank found in a global dairy report the second half of the year marked a turning point for milk supply growth across the main dairy export regions of Australia, New Zealand, Argentina, Uruguay, Brazil, the European Union and the United States.
Senior agricultural analyst Emma Higgins said farmgate milk prices were trending higher in most regions around the world.
“Across the global feed complex, there are no significant issues for dairy producers with prices and availability mostly being favourable,” Ms Higgins said. “This combination of rising milk prices and affordable feed mean dairy farm margins have improved. More money, will likely mean more milk for 2025.’’
As a result, supply growth would likely maintain momentum next year with gains expected in all of the Big Seven regions for the first time since 2020.
Ms Higgins said the extra milk was not expected to overwhelm the global markets, with the bank forecasting milk supply growth of 0.8% next year.
Fonterra’s forecast earnings for the season remain unchanged at 40-60 cents per share.
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