Yesterday left many dairy farmers feeling a little seasick. Fonterra NZ announced a drop in the Kiwi farmgate milk price from $6.00 to $5.30 per kg of milk solids.
The announcement came as rumours of a step-down from Australia’s Murray Goulburn Co-op that had been building for over a month continued to intensify. To its credit, the co-op was quick to send an email out to farmers in the export-exposed southern regions headlining that “MG is maintaining its opening price and full-year forecast at the weighted average available milk price of $6 per kilogram milk solids”. In other words, no step down.
But, and it’s a big but:
“The Board will continue to closely monitor the situation and consideration of any reduction in the base price would be a last resort if markets continue to decline.”
And, in what could only be code for: “Yeah, we’ve been begging you to invest for growth all year but just don’t spend any money from now on, okay?”, the co-op very kindly offered a conservative advisory: “Given ongoing market volatility MG recommends caution in farm budgeting until market directions become clearer”. In other words, no step down…err…we hope.
The man in the hot seat at Fonterra Australia, national milk supply manager Matt Watt, said the implications of the NZ price revision were still unfolding:
“Right now, the key focus of our September price review is determining what the current market conditions and the latest information we have to hand means for the Australian farmgate milk price. We’ll provide an update on this as soon as we complete the review.”
I asked how Fonterra balances the need to offer a competitive farm gate milk price in Australia with pressure from its NZ farmers to “send more money home” in a difficult year.
“There’s regularly a difference in NZ and Australian farm gate milk price because of the variances in product mixes,” Matt said.
“Historically this has meant that in some years Australian farmers have been paid a higher price than NZ farmers and in others, the reverse has happened. Nothing changes in our commitment to ensure our suppliers are profitable and can grow the whole industry. We know this requires confidence and certainty which is why we’ve taken the steps we did this year – the simplification of our milk price construct, our ramping up of our SupportCrew and the launch of our price risk management tools.
With both processors hedging their bets, who could blame farmers for doing the same?