Fonterra’s milk volumes in Australia continue to shrink rapidly, down nearly 29% in the first month of the new Australian season after a more than 20% fall in the season recently finished.
The news was better in New Zealand where, on much bigger volumes, the amount collected in July was up 2.2% on the same time last year (to 18.3 million kilograms of milk solids).
Fonterra said in New Zealand (where the season starts a month earlier) season to date collections as at the end of July were 32.7 million kgMS, up 4.7% on last season. This represents only around 2% of full season collections.
“These volumes are small in the context of the full season which is usual at this time of the year. The increase over July last year is also small and is due to a relatively mild July across much of the country supporting good pasture cover,” Fonterra said.
However, in its latest global dairy update for August, Fonterra says collections across Australia for the first month of the 2019/20 season (July) were 5.4 million kgMS, a decline of 28.9% on July last season.
The co-operative points out that this represents “a small percentage of the full year’s collection”.
Nevertheless, it continues a sharp downtrend of milk collection in Australia for Fonterra from the previous season, with the declines tending to become worse month by month.
In the last month of the previous season – June 2019 – the collected volume in Australia was down some 30% on the same month the previous year and it helped drag the overall loss of volume for the whole season down by 20.3%.
In the previous season before that (2017-18) the Australian volumes had actually risen by some 24%.
In commenting on the Australian situation, Fonterra said its milk collection share continues to decline across the Tasman, “impacted by intense competition for milk supply and the continued impact of the poor conditions on‑farm”.
“The drought in 2019 has led to an increase in cow cull rates, a significant number of farm retirements and a continuation of historically high input costs resulting in a material reduction to the Australian milk pool in FY19 versus FY18,” Fonterra said.
The co-operative has already previously announced it is closing its Dennington plant in Australia.
More recently Fonterra said it would take a one-off hit of about $70 million in its Australian ingredients businesses as that business adapted to “the new norm of continued drought, reduced domestic milk supply and aggressive competition in the Australian dairy industry”.
With other chunky write-downs being made on both overseas and New Zealand domestic operations, Fonterra’s already signalled it will be reporting a full-year loss, for the year to the end of July, of between $590 million and $675 million. There will be no dividend paid.
The result is set to be reported by Fonterra on September 12 and this will be very closely watched, very much not least by Fonterra’s farmer shareholders who have seen the price of the co-operative’s shares sink alarmingly.
The Fonterra Co-operative Group shares (which can only be owned by farmers) closed on Tuesday on an all-time (closing) low of $3.17 and were remaining around that level on Wednesday. At $3.17 the price is down 32% since the start of this year and over 50% since the start of 2018.
Any further blows from Fonterra will not make life any easier for farmers with substantial borrowings – particularly not those who may have used Fonterra shares as security.
