Cash flow for dairy products
Fonterra farmers will enter the new season with strong cash flow, thanks to an opening forecast with a record midpoint of $ 8 / kgMS.
The cooperative will pay its farmers 60% of the planned midpoint in the form of advance payments each month for milk.
If the payout stays at the expected midpoint of $ 8 until the end of the season, Fonterra and its farmers will inject $ 12 billion into the New Zealand economy.
Federated Farmers President of Dairy Products Wayne Langford says farmers are happy with a “very good start” to the new season.
“This will allow farm businesses to have a much better cash position in the first half of the season, when the majority of spending will occur,” Langford said. Rural news.
“The value that a payment like this will bring to all of New Zealand is enormous, especially as we strive to emerge from the Covid-19 crisis.”
Fonterra has only crossed the $ 8 mark once in its 21-year history: in 2013-2014, farmers received a final milk price of $ 8.40 / kg DM plus a dividend of 10 cents.
Fonterra chief executive Miles Hurrell said the cooperative was confident international prices would remain high.
“The midpoint of $ 8 is great news for farmers; the expected farm gate price of milk is a key indicator that farmers are looking for.
“This is the biggest opening forecast we have made and farmers will be hit.”
However, there are a number of risks and this explains Fonterra’s predicted $ 1.50 milk price range – $ 7.25 to $ 8.75 / kgMS announced last week.
Hurrell points out that Covid is far from over. The effects of governments’ liquidation of their economic stimulus packages, currency volatility, and changes in supply and demand patterns that can enter dairy markets when prices are high could be more subdued.
And as always, the potential impacts of any geopolitical issue around the world could also trigger a sudden drop in dairy prices.
ASB economist Nat Keall said the opening of the sea was appropriate given the season has just started and the remaining uncertainty continues to impact global dairy markets.
ASB’s own forecast is towards the higher end of the range – at $ 8.20.
Keall notes that even if the price of milk ends up near the low end of the range – which he says is unlikely – it would still represent a solid result for farmers.
Over the past ten years, the farm gate price of milk has averaged around $ 6.25 / kgMS, so a result of $ 7.25 would still be well above average.
“Still, we think it’s an unlikely scenario. For the season to end near the low end of the Fonterra range, prices should start dropping much earlier than expected, or dropping more sharply when they do.
“With the global supply of dairy products still relatively limited and demand from China likely to remain high, we continue to believe the odds are against a quick or abrupt correction.”
Hurrell agrees that global demand for dairy products, especially New Zealand dairy products, continues to grow. China is leading the charge as its economy continues to recover strongly.