Fonterra Co-operative Group Ltd has revised its forecast Farmgate Milk Price for the 2023/24 season, citing a decrease in demand for whole milk powder from China.
The new price range is set at $6.25 to $7.75 per kgMS, with a midpoint of $7.00 per kgMS, down a full dollar from the previous range of $7.25 to $8.75 per kgMS, with a midpoint of $8.00 per kgMS.
Fonterra CEO Miles Hurrell explained that the revision reflects the ongoing decline in import demand for whole milk powder from China. The initial forecast made in May was based on the expectation of an increase in China's import demand for whole milk powder in the medium term.
However, the overall Global Dairy Trade (GDT) prices for whole milk powder have dropped by 12% since then, and China's share of whole milk powder volumes on GDT events has remained below average levels. This indicates a current surplus of fresh milk in China, leading to higher levels of local production of whole milk powder and reducing the need for immediate imports.
Hurrell remains optimistic about the medium to long-term outlook for the dairy industry, especially for New Zealand dairy. He pointed out that milk production in key exporting regions is relatively flat compared to the previous year, indicating stable growth in the sector.
The reduction in the Farmgate Milk Price forecast could have significant implications for dairy farmers in New Zealand. A lower midpoint of $7.00 per kgMS means that farmers might face decreased revenue for their milk supply. It could also affect investment decisions and farm profitability for the upcoming season.
Fonterra's decision comes at a time when the dairy industry is closely monitoring global market trends, especially in China, which is a major player in the dairy trade. The company is adjusting its forecasts based on real-time data and international market dynamics to ensure fair pricing for its farmers and stakeholders.
Despite the current challenges posed by reduced Chinese demand, Fonterra remains committed to supporting its farmers and the New Zealand dairy industry. The cooperative continues to explore new opportunities and strategies to maintain a resilient and thriving dairy sector.