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Worries Mount Over Fonterra Price Revision

18 July 2014

NEW ZEALAND - Alarm bells are ringing in New Zealand over the prospects of farmers losing Fonterra’s NZ$7.00 forecast pay-out.

Wednesday’s Global Dairy Trade (GDT) Auction yielded an 8.9 per cent slide, taking the world dairy price to its lowest point since October 2012 and heightening fears of a downwards price revision.

Lower prices were expected this year but the extent of the drop has taken economists by surprise, according to the New Zealand Bank. 

Amid ‘near-perfect’ summers from Europe and the Americas, New Zealand dairymen are being warned of $6 to $6.25 per kilo of milk solids.

Such figures mean breaking even for twenty per cent of the industry at the high cost end, Federated Farmers dairy chairperson Andrew Hoggard warned this week.

Describing key rival countries as ‘having a blinder’ this year, he urged farmers to be conservative, in light of strong prices and lower feed costs driving production abroad.

European markets could also be in for a price plunge, hinging on the exposure of companies to the flux of the GDT.

A ten per cent drop in Whole Milk Powder values led the GDT decrease, due to ‘unseasonally high volumes’ of WMP entering the market over recent months, UK levy board DairyCo reported.

A large year on year production lift for the UK has allowed 14 per cent more milk utilised within manufacturing, a signal that liquid milk has limited options during times of strong output, DairyCo said.

Meanwhile, US output, up 1.5 per cent year on year in May, has been assisted by lower feed prices and more cows giving more milk.

Cow slaughter figures are 11 per cent down so far this year on 2013 and there are 50,000 head more dairy cows than in December.

Production in certain states has lifted more than others, inching higher in California, Idaho and New York but surging 10, 9.5 and seven per cent in Texas, Colorado and Kansas.

Market analysts are saying there will be little let up in milk supply as northern regions progress beyond peak output and southern regions gear up for winter.

Brazilian economists expect harvest to support a production lift in the next few weeks, while south eastern and central parts, currently very dry, require precipitation to avoid lower yields.

Average farmgate prices are reflecting strong dairy supply and faltering domestic consumption, dropping 0.73 per cent for the May/June period.

Looking forward, both Europe and Brazil look likely to export more as supply outstrips domestic demand.

Michael Priestley

Michael Priestley
News Team - Editor

Mainly production and market stories on ruminants sector. Works closely with sustainability consultants at FAI Farms


Top image via Shutterstock

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