Milk processor Fonterra Australia is following its New Zealand parent company’s lead, lifting farmgate milk payments to its farmer suppliers.
The company, which has seven processing plants in Victoria and Tasmania, will pay an extra 20 cents a kilogram of milk solids (MS) to push its farmgate price for the 2017-18 season to average $5.50kg.
As global milk product prices continue to move up gradually, Fonterra has also predicted closing prices at the end of the season will be around $5.80/kg.
The company is also reporting its milk supply pool has grown in the past month so Fonterra plants are now set to be working at “near optimal capacity”.
That news comes after rival, Murray Goulburn, announced this week its milk receivals were likely to be down about 200,000 litres on what it budgeted for this season – a clear indication its farmers were signing up with other companies or not confident of expanding their production under its current 5.20/kg price offer
In NZ Fonterra yesterday lifted its opening forecast payout to $6.35 ($NZ6.75/kg) milk solids – up from earlier forecasts of $6.50/kg for the 2017-18 season.
Fonterra’s Australian price lift applies to all milk received from July 1 and will begin to be paid from August 15.
Meanwhile, Fonterra’s previously committed additional payment of 40 cents/kg will be paid on top of the revised farmgate milk price, bringing the total average cash paid to $5.90kg (MS).
Individual suppliers’ milk prices will, however vary across Fonterra’s supply regions, depending on their farm’s milk profile, regional production factors, milk quality and farm management systems.
Fonterra Australia’s managing director René Dedoncker said improved market conditions and the strength of the Australian business supported the step up.
“Strong demand from Fonterra’s Australian and global customers has enabled us to deliver this step up to our farmers,” he said.
“This price increase will improve cash flow positions on farm, reinforcing growing confidence of our farmers.”
However, Mr Dedoncker noted commodity prices were strengthening, the Australian dollar’s recent rally to more than US80c this week was likely to influence export earnings potential and end of season milk payments, potentially undermining its hopes for a $5.80 final payout.
“We continue to monitor currency movements closely and will keep our farmers updated throughout the season with the latest market conditions,” he said.
Fonterra chairman in NZ, John Wilson, said the ongoing re-balancing of supply and demand in global dairy markets was helping the dairy giant.
"We are seeing growing confidence on-farm across NZ and, with global demand for dairy strengthening, the signs are for a good start to the season for our farmers and their rural communities," he said.
Fonterra Australia collects about 1.7 billion litres of milk annually from almost 1100 farmer suppliers and their 300,000 dairy cows.