New Zealand Farmgate Milk Price Declines Continue

Prices equate to about $13/cwt
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Fonterra Farmgate Milk Prices for  2014-20’15 continue to be revised lower in response to declining GlobalDairyTrade (GDT) prices. Fonterra recently reduced its Farmgate Milk Price for the ’14-’15 production season from $5.30/kgMS to $4.70/kgMS, the third downward revision in the last seven months. Prices are quoted in New Zealand dollars per kilogram of milk solids.

The Fonterra Farmgate Milk Price determines the amount paid for milk delivered to the farmgate by farmer shareholders of the cooperative. Production seasons refer to the 12-month New Zealand milk season running from the beginning of June to the end of May. Fonterra Chairman John Wilson noted that falling oil prices, geopolitical uncertainty in Russia and Ukraine, and subdued demand from China has contributed to ongoing volatility and weak demand in global dairy markets, leading to the most recent downward price revision.

Fonterra Farmgate Milk Prices largely reflect U.S. dollar prices achieved on the bimonthly GDT trading events, converted to New Zealand dollars using Fonterra’s actual average monthly foreign exchange conversion rate. The 11.3% downward revision from the previously forecasted ’14-’15 Fonterra Farmgate Milk Price of $5.30/kgMS was fairly consistent with the 10.1% decline in the GDT Price Index over the same period. The GDT Price Index represents a weighted-average of the percentage changes in prices between trading events for all products offered at the events. Over the past ten years, Fonterra Farmgate Milk Prices and the GDT Price Index have trended very closely together.

Fonterra Farmgate Milk Prices are calculated by determining the total revenue that Fonterra would earn if all milk received by the cooperative was converted into whole milk powder (WMP) and skim milk powder (SMP), and their by-products which are anhydrous milkfat (AMF), butter, and butter milk powder (BMP). Associated costs including operating costs, overhead costs, and capital recovery costs are then subtracted from the revenue figure to reach the Farmgate Milk Price.

Historical Fonterra Farmgate Milk Prices

The most recent forecast ’14-’15 Fonterra Farmgate Milk Price of $4.70/kgMS is at a significant discount to past years, down 44.0% YOY and 30.9% below the five year average Fonterra Farmgate Milk Price. The ’14-’15 Fonterra Farmgate Milk Price is forecasted to reach levels not experienced since the ’06-’07 production season, resulting in an eight year low. In comparison, the GDT Price Index fell 48.4% in total throughout 2014, reaching levels not experienced since Aug ’08. The declines in WMP and SMP prices were larger, with both declining in excess of 50% throughout the past 12 months. WMP and SMP prices account for the vast majority of the Fonterra Farmgate Milk Price formula.

Comparison to U.S. Prices

Although it is difficult to compare Fonterra Farmgate Milk Prices and U.S. milk prices due to differences in component values, figures derived from the Dutch Federation of Agriculture and Horticulture Organization, LTO Nederland, indicate that Fonterra Farmgate Milk Prices are significantly below U.S. milk prices. When converted to U.S. All-Milk equivalent prices, Fonterra Farmgate Milk Prices have trended south of $15.00/cwt in recent months. Accounting for the most recent Fonterra Farmgate Milk Price forecast revision and current exchange rates results in an estimated U.S. All-Milk equivalent price of just over $13.00/cwt, significantly lower than current domestic futures prices.

If U.S. milk prices were to follow the same trend as the forecast Fonterra Farmgate Milk Price, price declines would be even greater. From Jun ’13 – May ’14, the U.S. All-Milk price averaged $22.16/cwt. Applying the 44.0% YOY reduction in prices experienced in the most recent revision to the ’14-’15 Fonterra Farmgate Milk Price would result in a ’14-’15 U.S. All-Milk price of $12.40/cwt, far below the Dec ’14 USDA estimated 2015 All-Milk midpoint price of $18.85/cwt. The Fonterra Farmgate Milk Price is heavily weighted by WMP and SMP, which have experienced larger declines than other dairy products within the year, so the extent of the decline may be overstated, but potential declines of this magnitude remain a cause for concern for domestic dairy producers.

Summary

Fonterra Farmgate Milk Prices are one of several indicators of global dairy market temperament. Although domestic dairy prices have declined from recent highs and futures indicate price declines are likely to continue, Fonterra Farmgate Milk Prices suggest additional downside risk from current futures prices is possible.

 
 
Source: AgWeb
 

Mirá También

Así lo expresó Domingo Possetto, secretario de la seccional Rafaela, quien además, afirmó que a los productores «habitualmente los ignoran los gobiernos». Además, reconoció la labor de los empresarios de las firmas locales y aseguró que están «esperanzados» con la negociación entre SanCor y Adecoagro.

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