Fonterra Australia is out with its opening price, but it hasn’t got a “9 in front of it” as urged by suppliers.
They have announced an opening weighted average milk price for the 2023/24 season of $8.65/kgMS.
This price, they say, is made up of the minimum monthly rates set out in Fonterra Australia’s milk supply agreement, together with standard production and quality incentives.
Fonterra Australia Managing Director René Dedoncker said that Australian farmgate pricing for the season ahead remains higher than international commodity values, which have fallen by 17 per cent in the past year, however, is supported by the strength of Fonterra Australia’s domestic business which comprises most of its revenue.
“Despite the decline in international prices, the outlook for dairy remains generally positive with global demand currently expected to lift in the medium-term, with only modest supply growth forecast in export regions.”
Mr Dedoncker said that Fonterra Australia’s business was well-placed to continue to deliver good returns.
“Our Australia business continues to perform well, with our Consumer and Foodservice sales channels maintaining their market-leading positions. Our focus remains on putting the milk from our farmer suppliers into the highest value products, managing our costs and maintaining a profitable business.
“We are confident in our price position and our ability to be competitive, with our diversified product mix, sales channels and access to domestic and export markets giving us options for our farmer suppliers’ milk.
“We are proud of the relationships we have built with our farmer suppliers, and we look forward to continuing our partnership with them in the season ahead,” Mr Dedoncker said.
Fonterra Farm Source Manager Matt Watt has defended the opening price of $8.65 which is below market expectations.
He told ABC Country Hour today that it was simply “a starting point” and the firm would be able to update its price as soon as it locked away more contracts and saw more about how the season and market was shaping up.
But he did say Fonterra was looking to grow its supply to meet expanding demand for its major products including Western Star and Perfect Cheese.
He was also quizzed about the difference between the price it was offering in Australia versus New Zealand.
“I mean, in terms of the New Zealand price, as you say, there was a wide range announced from $7.25 through to $8.75 (Kiwi dollar) so a midpoint of around $8 (New Zealand). That's off the back of this year price of $8.20 (New Zealand) but if I go back a year prior, it was $9.30.
“So, what we've seen and it's been the case over time, is that the commodity market impacts the New Zealand farmgate milk price much more quickly than Australia.
“And the reason for that is that we've got 75% of our product that remains here domestic. It also goes into streams like cheese and other products that are far more domestically weighed which is different to New Zealand which is much more of an export and a powder market and the China demand, which we're all watching, and when I think about the competitiveness for the Australian price, but also just the outlook for New Zealand, the China demand will have a more immediate impact on them.
So, the difference is really around the fact that they're much more powder-based and much more export focused. So you see a much more immediate translation of market returns.
“I should also say that that is a forecast you know the New Zealand milk price moves up moves down quite regularly and quite rapidly as commodity markets change.”
