Fonterra says New Zealand farmgate cuts won’t have Australian implications

A significant cut at the New Zealand farmgate by Fonterra is not on the Australian arm’s radar. Here’s what you need to know.

A farmgate price slash in New Zealand does not have immediate implications for Australian suppliers, Fonterra management says.

Fonterra NZ reduced and narrowed its 2022-23 season forecast to $NZ8.20-$NZ8.80 per kilo milk solids ($A7.50-$A8.05) last week due in large part to softer Chinese demand.

The Auckland-based processor had a previous NZ forecast range of between $NZ8.50-$NZ9.50 ($A7.77-$A8.69) per kilo milk solids before the Chinese downturn took hold.

Fonterra Australia farm source director Matt Watt acknowledged an “emerging disconnect” between Australia’s farmgate and international commodity prices.

However, any immediate farmgate changes were off the cards.

“New Zealand and Australia are very different markets, with NZ predominantly a milk powder and export market which is largely driven by China demand, while Australia is predominantly a domestic and cheese export market,” Mr Watt said.

“The revised forecast in New Zealand reflects reduced demand for whole milk powder, particularly from Greater China, and we are seeing an emerging disconnect between declining global commodity values and local farm gate prices in Australia.”

Fonterra Australia farm source manager Matt Watt

Last month, Fonterra Australia provided a summer step-up of 15 cents, bringing its average farmgate price to $A9.55 per kilo milk solids.

Australia’s mandatory dairy code of conduct, introduced in July 2020, means a farmgate price cut is unlikely this financial year.

However, the softening international market for dairy means Australia’s opening prices, due on June 1, are likely to be far softer than last year.

“It’s too soon to forecast pricing for next season as there is a lot to play out,” Mr Watt said. “Over the next few months we will continue to monitor the market and talk to our farmers about how the next season is shaping up.”