The New Zealand dairy giant last week decreased its end of season forecast to $5.70 a kilogram of milk solids, while paying a 10 cent/kgMS step up that pushed the farmgate milk price up by 12 cents/kgMS to $5.62/kgMS.
Fonterra said the extra 2 cents/kgMS reflected changes in the seasonal curve and milk composition of the milk received. It will still pay an additional 40 cents/kgMS on top of this quoted price.
But Gippsland-based John Mulvany said the current cash price received by dairy farmers, regardless of their processor, was the biggest factor in decisions such as feeding supplement.
For example, he said, the current Murray Goulburn cash price among some of his clients was $4.50-$4.70/kgMS with some farmers paying $300 a tonne for grain mix. These prices made feeding supplement a “marginal decision” and one that became about cash flow.
“It becomes a cash decision, whether I can pay the feed bill (next month) irrespective of whether I get paid more at the end of the year,” Mr Mulvany said in referring to the 40 cents/kgMS proposed for suppliers as part of the Saputo buyout of MG which is subject to a number of approvals.
For those where the economics were not so tight, Mr Mulvany said it was still a long way until February when farmgate milk prices would lift significantly. This puts pressure on farmer margins.
“The outstanding issue in the Victorian and Tasmanian dairy industries, as we speak, is the stupidity of payment systems,” he said.
“We went from 15kg of grass at the start of November to 8kg of grass by early December and milk prices — the major companies particularly Saputo, Fonterra and Murray Goulburn — the price does not increase significantly until after February yet they have the audacity to expect milk.”
Dairy Australia analyst John Droppert said global markets had become more “shaky” in recent months.
“The fact that there is more and more uncertainty about what’s going to happen with the skim milk powder stockpile in Europe and the butter price in the northern hemisphere has dropped away pretty quickly in the last few weeks,” he said.
“The market has definitely softened the outlook, it is a lot more shaky than it was two months ago.”
Further threats to the farmgate milk price outlook include timely rainfall in New Zealand during summer, which could help boost milk production, and weakened global demand for dairy, Mr Droppert said.
He said Christmas was generally a quiet time with Chinese New Year demand already locked in, but trade usually picked up again mid-January into February.
The level of demand during this period would provide an insight into customer demand.
On the upside, Mr Droppert said the euro was about 10 per cent stronger than this time last year. The strength in the euro helped Australian processors compete against EU product in international markets, as the EU product is more expensive in US dollar terms.