New Zealand hikes forward milk price

Fonterra Co-op in New Zealand upgraded its milk price for the year ahead in a note to suppliers this week. The way Fonterra Co-op set milk price is that it sets a forward price, or more precisely a forward price range, listed in milk solids per kilo to suppliers at intervals through the year.

Then, as the year moves on and markets evolve, it updates the price and tightens in on the exact price it will pay.

It means, as a business, its management has to aim for that mid-point range and try to hit it as close as they can. That drives a sales agenda and forward selling agenda.

Finished milking

Remember, given the time of year, the majority of New Zealand farmers are finished milking for 2020 and only now is Fonterrra finalising the 2019/20 price and setting a forward price for 2020/21.

So the key information in the note to suppliers this week was: "The 2019/20 forecast farmgate milk price range has narrowed from $7.10 - $7.30/kg MS to $7.10 - $7.20/kg MS. The mid-point, off which farmers are paid, has reduced to $7.15/kg MS, down from $7.20/kg MS." Essentially, that’s saying the final price for the season just finished, when converted for currency and milk solids, is going to be $7.15 or 28c/litre in Irish money.

Price for the year ahead

The second important note to suppliers was about the price for the year ahead.

"The 2020/21 forecast farmgate milk price range has narrowed from $5.40 - $6.90/kg MS to $5.90 - $6.90/kg MS. The mid-point, off which farmers are paid, has increased to $6.40/kg MS, up from $6.15/kg MS."

Essentially, that’s saying the price when converted for currency and milk solids is going to be $6.40 or 25c/litre for the coming year.

So the range is $1/kg MS, which is 4c/litre in our money, and the lowest milk price is 23c/litre and at best the price will be 27c/litre.

In terms of forward budgeting or getting a feel for where your dairy business is going at both a processor or farm level, think about how we do it here in Ireland.

Retrospective price

Our boards meet and retrospectively set the milk price for the month just gone by. They tell suppliers in cents/litre what they are going to pay them, despite the fact suppliers are paid in kilogrammes of milk solids.

Anyway, we can’t be too hard on our colleagues - after all, they lifted the milk price this week for June.

The Fonterra lads are optimistic on China recovering strongly, so our lads might stay lifting the price for July and August.

The Fonterra note said: “Commenting on the 2020/21 forecast farmgate milk price range, Mr Monaghan says the lift to the bottom end of the range was being predominantly driven by improved market conditions in China.

"After an initial shock due to COVID-19, dairy consumption in China is recovering with more people spending on food. We’re seeing customers ramp up promotional activity as they look to catch up on the sales losses incurred over lockdown.”

Read more

Big three all lift June milk price

Dairygold and Carbery increase June milk price

Exclusive: Kerry Co-op to be liquidated as part of JV deal with Kerry Group