Fonterra says positive GDT result and strong milk demand 'really encouraging'

It's hoped the increased demand will bring some relief to farmers.
It's hoped the increased demand will bring some relief to farmers. Photo credit: Newshub.

New Zealand dairy farmers are off to a great start to 2021 as prices leapt 3.9 percent across the board in the first global dairy trade auction of the year.

During the first global dairy trade event, the average price for commodities rose to more than US$3420 ($4715) per metric tonne.

Whole milk powder, the most important product for New Zealand farmers, lifted 3.1 percent - its highest level in 12 months.

Fonterra chief financial officer Marc Rivers told Morning Report the results showed demand was strong across all regions, particularly across China and Asia.

"No doubt there's a little bit of a benefit here of great purchasing power from a weaker US dollar, but really encouraging to see that strong demand there," Rivers said.

"We always provide a range for our forecast, so this is within our range but it's a really good start to the year."

Dairy purchasing patterns for the Northern Hemisphere had also been disrupted by Covid-19, he said.

ANZ agriculture economist Susan Kilsby said the results came as a great surprise.

"It's a really positive start to the season for our farmers and it means the likelihood of the milk price being at the higher end of the range that Fonterra is currently forecasting, is much greater."

Federated Farmers dairy chair Wayne Langford said the results were encouraging, especially during uncertain times.

"I think considering the circumstances around the world where we see different countries going into lockdown again, a rise like this is very positive and it will certainly be welcomed by farmers coming out of the Christmas break."

The commodity Lactose saw the biggest increase, rising 7.4 percent, while butter was up 7.2 percent.

Langford hoped the results would bring a lot of relief to farmers.

"What it will do though is strengthen the forecast, which is good news for farmers, it gives us some certainty around what we're doing and certainly leaning forward into the end of the season. A lot of the milk will be contracted in from now on and so it will give us a bit more surety around what our payments are through winter and October will look like."

ANZ's Susan Kilsby said it was not just dairy farmers who would benefit.

"It certainly does flow through, a lot of the spending in our rural communities is funded from incomes that come from dairy farmers so it definitely flows through to our rural communities. so it's really positive that we're seeing a good level of milk price there at the moment."

Langford agreed, saying urban areas would also see flow-on effects.

"It's a heck of a lot of money if you look at it across wider New Zealand, so I encourage those businesses - particularly in urban towns and rural towns - to get amongst it and filter down off the good work farmers are doing."

The next global trading session is on 19 January.