NEW ZEALAND – Dairy farmers are rejoicing after news of a Fonterra milk price increase that will push up farmgate values of some products by over a dollar.
The dairy cooperative confirmed an opening farmgate milk price of NZ$7 per kilogram of milk solids for the 2013/14 season.
In addition, the Advance Rate schedule is set at £5.00 per kg/MS.
Fonterra has stated the increases reflect price outlook for the season and the continued strong performance of dairy commodity prices.
The news could not come soon enough for most producers who are trying to bounce back from one of the hardest droughts in memory.
“Boy oh boy did we need some morale raising good news,” said Willy Leferink, Federated Farmers Dairy Chairperson. “Put simply, it means that farmers could get 0.58 cents per litre for milk they produce between June and May 2014.”
In order for dairying to be sustained, price increases are vital. The Ministry for Primary Industries now calculates farm costs at NZ$4 kg/MS, which is a figure not reflective of loan payments and the impact of the drought this year, added Mr Leferink.
Now the drought is breaking, Fonterra's announcement is a source of relief to farmers rebuilding herds and repairing pastures after consecutive months of production shortfall.
“One word best describes the back end of the current 2012/13 season and it is ugly,” added Mr Leferink. “February’s production was less than last year, March’s milk production slid back to 2010 levels while April’s has tumbled off a cliff.”
“The fact we can farm through to the promising greenfields of 2013/14 is only because the banks saved our bacon. If we can get $7 kg/MS next season, then it may even out this ugly season but there is a lot of water to go under the bridge first.
“I know farmers running the average herd size who are paying something like $1,000 a day in supplemental feed costs. Some will make losses of hundreds of thousands this season.”
The plight of dairy farmers is well known by Fonterra Chairman, John Wilson. He too outlined spiralling feed requirements and costs as damaging to farmer shareholders.
Higher milk prices should ensure farms can manage their business and provide a steady milk supply, he added.
But, according to Fonterra Chief Executive, Theo Spierings, the future is still uncertain with global supply below that of what it should be.
Cold weather across Europe, on top of New Zealand’s production dip has meant milk production growth has slowed, leaving the outlook mixed.
“Milk production growth in 2013 for the top 15 exporting countries is projected at 0.5 per cent or 1.2 billion litres - well below the 1.8 per cent (4.5 billion litres) growth levels we saw in 2012,” said Mr Spierings.
“In general, the global economic outlook remains steady but with some downside risk. In the USA modest growth continues, while China has managed a soft landing with the consensus on growth at around 7.8 per cent.”
Fonterra has announced it will closely monitor global weather and economics through the 2013/14 season.
Shareholders have been warned that a strong uplift in world powder prices will create a more challenging environment for Fonterra earnings in the first half of 2014.