Milk circus act cancelled

Conversations | 17th June 2024 | By Chris Lawlor

Independent Contributor

Ladies & Gentlemen…..we may have cancelled tonight’s act…..

After all the competitive tension in June 2022 and 2023, 2024 is proving to be quite boring much to the disappointment of most Australian Dairy Farmers who almost got used to making a profit!

With the big 3, Saputo, Bega and Fonterra all opening within 8 cents of each other, no one is prepared to listen to farmer sentiment and shift the bar to the barely sustainable average break-even price of circa $8.50/kgMS.

Although some farmers, generally the more grass-based farms like Tasmania and coastal Victoria can operate with FWE (Farm Working Expenses) of $6.50/kgMS, most endure seasonal variability and need to buy in a bitta fodder and operate with circa $7.50 FWE/kgMS. Both situations leave little for interest costs or capital maintenance.

What seems to have happened is Fonterra announced the impending sale of Australian assets and led at the lower end of expected ranges. Saputo and Bega probably breathed a sigh of relief after both announced large ‘net losses’ during the season and took it as a ‘let’s match that’ and ‘claw back’ a bitta last year’s damage……….

Fonterra will be happy if they can stay low to show a better cashflow for potential purchasers…..I’m guessing at $8/kgMS base milk price they could get to a double digit operating return, as opposed to low single digit this season.

I listened to Dr Craig Emerson at the Horticulture conference recently talking about the Supermarket Oligopoly or perceived collaboration on pricing between supermarkets. This is like the flip side of it whereas opposed to collaboration to make ridiculous profit, processors may have collaborated to avoid going broke.

Whilst some over capitalised processors were clearly losing money having to pay circa $9.50/kgMS for milk last this season. On June 20 Last year the GDT price index was at 1002, its now 16% higher at 1162….

This all point’s to a sustainable milk price of circa $9.00/kgMS. The NZ snapshot I refer to in the last update is now at $9.71/kgMS after the last GDT rise.

Fonterra’s NZ Milk pricing mechanism means with this spot price they will have to step up their opening price forecast of $8/kgMS, likely to $8.50/kgMS at least.

Rumours here suggest the big 3 are feeling the pressure and there will be 25-30c/kgMS more by the end of June.

Now as an aging kiwi farmer whose taken a couple of $4/kgMS milk price hidings, it’s good to start the season conservatively and optimistically look forward to step ups, if you get paid too much at the start those millennials I’ve referred too might talk you into new tractors and virtual fencing!



  • Dairy
  • Prices
  • Processing