- Fonterra has increased its forecast farmgate milk price for the season by 50 cents per kilogram of milk solids.
- The move means farmers could make and average of around $87,000 more this season.
- But an economist says retail prices for dairy products are likely to rise.
Bad news, cheese and butter fans ‒ while farmers could be in line to make an extra $87,000 this season, retail prices for dairy products are likely to rise.
On Monday, Fonterra increased its forecast farmgate milk price ‒ the amount it pays dairy farmers for their milk ‒ from $9 per kilogram of milk solids (kgMS) to $9.50 per kgMS.
That’s good news for farmers, whose cows produced an average of 393 kgMS in the 2022/23 season, according to DairyNZ.
On those numbers, a payout increase of 50 cents per kgMS means farmers could make $196.50 more per cow this season. And with the average herd size coming in at around 440 cows, that’s a potential bonus of almost $87,000 per farm.
But what does all this mean for those of us without a herd? Does farmers getting paid more mean we won’t have to pay so much for our butter and cheese?
Sadly, that’s unlikely to be the case, according to Infometrics chief executive and principal economist Brad Olsen.
While the increase in farmgate milk price shouldn’t directly raise the price of dairy products in the supermarket, the reason it has moved is the same reason supermarket prices may rise, or have already been increasing, he said.
“Both the farmgate milk price and the price of dairy products at the supermarket are influenced by a common factor – the price received for dairy goods on the international stage.”
In its price update, Fonterra said chief executive Miles Hurrell largely attributed the improved outlook to strong demand for reference commodity products, which had helped to push prices up in recent Global Dairy Trade auctions.
“Essentially, that means international prices paid for dairy have been rising over 2024, and those higher international prices have now been going on long enough, and Fonterra has pre-sold enough, to be confident it will get a higher price for its products internationally, so it can pay the higher farmgate milk price,” Olsen said.
“If Fonterra, or any other producer, can get $X for their dairy product internationally, and less than $X for a product domestically, they would sell all their product internationally all the time.”
As a result, domestic dairy prices were set to be higher to try to balance the domestic and international prices, he said.
“Although we produce a lot of dairy here, prices won’t necessarily be cheaper – what farmer wants to deliberately take a lower profit for doing their work when they could get more internationally? So instead, domestic prices have to at least trend with international prices.”
Stats NZ’s latest food price index showed dairy prices had been increasing recently, with butter prices helping drive an increase in grocery costs in September.
Cheese prices which, despite sitting at around the $10/kg mark for the cheapest block, have actually been falling, could also be affected, Olsen said.
“The latest Stats NZ data for September shows the cheapest 1kg block of mild cheese continues to drop, having fallen below $10/kg in September for the first time since January 2024.
“However, obviously with rising global dairy prices, this lower pricing trend for cheese could well shift in the other direction soon.”
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