Fonterra’s milk collection is running 10% behind last season and the graph line has dropped below the 2012-13 track, the last big drought in New Zealand.
Fonterra chairman John Wilson said milk production was dropping quickly, underscoring the co-operative’s most-recent prediction of a season outcome that would be 3.3% below last season.
He told the Northland Dairy Development Trust annual conference Fonterra expected a recovery in world dairy prices “later in the year” to achieve the market consensus of long-run milk powder value around US$3500/tonne.
“We still have a distance to travel before we can support our current $4.70/kg milksolids milk price forecast.”
The directors would next review the milk price at the February board meeting, February 23 and 24 in Whangarei.
When reviewing the world supply and demand factors he said European co-operatives Arla and Friesland Campina had just announced their biggest month-on-month farmgate milk price reductions ever.
After a record 2014 year, European producers could not now afford to exceed their quotas and pay the penalties in the three months before those quotas were abolished on May 1.
The message of lower world dairy values was getting through to European farmers but not to those in the United States.
“I have just hosted the chairman of Dairy Farmers of America, who was talking 2-3% production growth, which could well be 3-4%.
“We don’t see those heavily-supported US farmers cutting back their milk production any time soon,” Wilson said.
China had not run down its inventories of NZ milk powder because manufacturers had been able to use recovering volumes of domestic milk during second-half 2014.
“What we now see of production data in China could mean potentially a quick correction over the next couple of months (and a return to the NZ market).”
Turning to the demand side, Wilson said all eyes were on Russian president Vladimir Putin and the dairy trade disruption.
Falling oil prices were positive for consumer demand in Asian markets, including China, but potentially negative in three large markets for NZ – Venezuela, Algeria and Iran – which might lead to payment delays.
Wilson also defended the Mymilk option of supply not backed by share ownership in Canterbury, Otago and Southland, where Fonterra had highly efficient processing plants.
“The reality is not all farmers believe in co-ops and owning shares – this is about providing an option for them and mixing it up with the competition.
“When we can secure additional milk for those efficient assets and pay less than the shareholders’ milk price that has to be good for the co-operative.”
Source: Agrihq
