Higher demand from China drives up Fonterra's forecast farmgate milk price

The co-op increased its mid-point to $6.80 per kilogram of milk solids.
The co-op increased its mid-point to $6.80 per kilogram of milk solids. Photo credit: Newshub.

Fonterra increased its forecast farmgate milk price on Thursday.

The co-op raised the mid-point for its 2020/21 season price range to $6.80 per kilogram of milk solids, up from $6.40 per kgMS. It retained its current plus/minus range of 50c.

Chief executive Miles Hurrell said the higher forecast was driven by improved demand in China.

"Despite the initial impact of COVID-19, we have seen demand for dairy in China recover quickly," Hurrell said on Thursday.

"In particular, demand for whole milk powder, which is a big driver of milk price, has been stronger than expected.

"While it is still early in the season, dairy prices have improved from the levels we saw on GDT [Global Dairy Trade] through the first wave of COVID-19 and demand for milk powders has proved resilient."

Hurrell said a milk price of $6.80 would see $10 billion flow into the country.

Despite the higher forecast, Hurrell said a "number of risks" still remained.

"It is still relatively early in the season and a lot can change. For example, we could experience volatility with exchange rates, milk supply from the EU and US is increasing and there continues to be uncertainty around how a potential risk from further waves of COVID-19 and a global economic slowdown could impact demand.

"With increasing demand and supply, we see the dairy outlook as more balanced, but given there are still a number of risks, we are still recommending our farmers be cautious with their decision-making."