Fonterra stressed the threat to dairy markets from swelling global inflation as it trimmed its forecast for milk prices this season, reducing the prospects of another record payout to its farmers.
The New Zealand-based dairy giant – reducing to NZ$8.50-$10.00 per kilogramme of milk solids from NZ$8.75-$10.25 per kilogramme of milk solids its forecast for the 2022-23 milk price paid to its farmers – said that the downgrade reflected “a number of factors”.
However, it highlighted the pressure on global dairy prices from “some short-term softening in global demand, and the general impact of inflation on purchasing behaviour”.
Inflation, swollen by factors including rising energy prices, has hit multi-decade levels in many countries, crimping consumer budgets.
The analysis appears to indicate a more general threat to world dairy demand than the dip in purchases by top importer China that many investors have focused on in driving declines at the likes of GlobalDairyTrade auctions.
China’s dairy imports slumped by 22% year on year in June, in the face of a particular economic downturn, seen as being accelerated by the effects of Covid lockdowns.
For the 12 months to June, imports are down by 8.6%, or by more than 350,000 tonnes in volume terms, as Chinese dairy groups have turned to winding down sizeable stocks.
The GlobalDairyTrade index has slumped by 29% from a March high, fuelled by a 28% slump in prices of whole milk powder, which accounts for most of the volumes traded at the event.
Whole milk powder – which in March reached an eight-year high of $4,757 per tonne – traded at a 19-month low of $3,417 per tonne at last week’s auction.
‘Very, very tight’
Fonterra’s downgrade reduced the mid-point for its milk price forecast to NZ$9.25 per kilogramme of milk solids, taking it below the record NZ$9.30 expected for last season.
Miles Hurrell, the co-operative’s chief executive, said that while the revision would be disappointing for our farmers… we believe the longer-term outlook for dairy remains positive”.
ASB bank also sounded a reassuring note, standing by a forecast for 2022-23 prices of NZ$10.00 per kilogramme of milk solids, reflecting expectations that demand would “hold up relatively well, despite the headwinds facing the global economy.
“While weaker Chinese demand has been a feature of the market lately, Chinese growth forecasts are looking OK for the second half of the year,” showing expansion rates of 5-6%.
“Suffice to say, global dairy supply is set to remain very, very tight over much of the season.”