The CEO of New Zealand dairy processor Fonterra has admitted that two downward milk price revisions by the co-op are unsettling for farmer suppliers.

Earlier this month, Fonterra said it expects the farmgate milk price to sit between NZ$6/kg and $7.50/kg of milk solids (MS), with a mid-point of $6.75/kg MS.

This was a further revision of an earlier reduction when it forecast prices to land between $6.25/kg and $7.50/kg MS. At $6.75/kg MS, this is the equivalent of 23.9c/l, at 3.3% protein and 3.6% fat.

'Under pressure'

In an email from CEO Miles Hurrell to Fonterra suppliers, he noted that many farmers are under pressure and that the milk price revisions have resulted in an even more challenging outlook for the year.

“It’s regrettable to have had to make revisions of this magnitude early in the season.

“While we rely on market information we have at the time, I acknowledge the pace and magnitude of these recent price changes has been unsettling,” he said.

Hurrell noted that a reduction in demand from China for imported whole milk powder has been one of the key drivers of falling prices.

Chinese growth

“Strong domestic milk supply growth in China has been propelled by high raw milk prices over the past few years.

“More recently, China’s extended COVID-19 lockdown has reduced consumer demand for fresh milk products and this demand has not yet recovered to the previously forecast levels.

"Chinese processors have been left with no choice but to spray dry their surplus milk, leading to high in-market stocks of whole milk powder,” he said.

Indications are that demand for New Zealand product could start to return from 2024, he said, adding that exports to China will remain “an important part” of the product mix for the foreseeable future.