Campbell Tyson Blog

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More Pain For Dairy Farmers

Fonterra has reduced the forecast farmgate milk price for the 2015-16 season. The Fonterra payout has dropped from $4.60 per kgMS to $4.15 per kg MS while Westland Milk and Open Country Dairy have also reduced their forecast payouts.

Since September 2015 the GlobalDairyTrade price for Whole Milk Powder has fallen by 12%, and Skim Milk Powder by 8%. Whole Milk Powder is currently trading at US$2,188 a tonne. The price needed to be $US3,000 per tonne to meet the previous forecast of $4.60 per kgMS.

Why has the price for Dairy Commodities fallen? When supply is greater than demand, prices fall. Dairy supply is currently outstripping demand which is continuing to put downward pressure on milk prices. While New Zealand dairy farmers have reduced supply to counter lower demand, milk volumes have continued to increase in other regions. Demand for dairy commodities has been impacted by the slow recovery of demand from China, the continuing Russian trade ban, and decreasing oil prices reducing the purchasing power of oil rich countries.

While Fonterra CEO Theo Spierings recognises global demand is listless, Fonterra supports the view that dairy prices will improve later this year. In the meantime dairy farmers and rural service providers will need to adjust to reduced cashflows.

If you need to review your budgets for the year or need a cashflow forecast please feel free to contact us.

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Guest Tuesday, 22 October 2019