Fonterra signals record milk price, report shows lamb numbers are down - but the sector is showing resilience, and forestry restrictions spark land management debate.

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Fonterra signals record milk price

Fonterra's latest milk price forecast could mark a record-breaking milestone for the 2024/25 season. The cooperative has upgraded its midpoint forecast to $10 per kilogram of milk solids, with a potential range spanning $9.50 to $10.50 per kilogram.

Chief Executive Miles Hurrell says compelling global market conditions are driving this positive outlook. Demand recovery in China and continued strong interest from Southeast Asian markets are creating favorable dynamics for our dairy sector. Production challenges in the United States and Europe are simultaneously contributing to a more attractive global dairy landscape.

The company's earnings forecast remains stable, ranging between 40 and 60 cents per share. Fonterra anticipates maintaining underlying operating profit by offsetting higher milk costs through improved sales volumes, strategic product mixing, and pricing adjustments.

The projected milk price reflects global market strength and the continued importance of New Zealand's dairy industry on the world stage.

Milk powder gains highlight latest Dairy Trade Auction

The forecast comes on the heels of a robust Global Dairy Trade auction, where futures market indicators had been signaling potential for this price point, now confirmed by Fonterra's projection.

This weeks auction saw overall prices increasing by 1.2%. This follows a 1.9% climb two weeks ago and an impressive 4.8% jump prior to that.

Whole milk powder recorded a solid 4.1% increase, after previous rises of 3.2% and 4.4% in recent auctions.

Lactose saw the most significant jump, surging 7.7%.  However, several products experienced price declines.

Skim milk powder dropped 1.0%, while anhydrous milk fat dipped slightly by 0.5%. Butter milk powder saw a more substantial decrease of 2.6%, and cheddar prices fell 3.2%, following a similar decline in the previous auction.

Butter experienced the most significant fall, slumping 5.2%. Mozzarella continued its downward trend, sinking 4.5% after a substantial 6.6% drop in the previous auction.

Synlait reaches potential turning point

Synlait Milk has taken significant steps towards stabilizing its operations, with the company reporting its first farmer supplier withdrawing a two-year cessation notice this week. Chair George Adams expressed cautious optimism at this week's annual meeting at its Dunsandel site, describing this as a potential turning point for the dairy processor.

The company has implemented a strategic retention program, offering a 20 cents per kilogram of milk solids payment to encourage farmers to maintain their milk supply. This initiative targets both existing and potential new suppliers, with specific conditions attached to the offer.

Financially, Synlait has reported a net loss of $182.1 million for the financial year, with revenue increasing slightly to $1.64 billion. The company has been working to reset its balance sheet, including a significant capital raise and refinancing its banking facility until 2025.

The processor has made strategic changes, including focusing its North Island site at Pōkeno exclusively on advanced nutrition. Its milk supply forecast currently sits at $9.50 per kilogram of milk solids.

Leadership changes are also in progress. Following the departure of former CEO Grant Watson, the company has engaged recruitment agency Korn Ferry to conduct a global search for a permanent chief executive.

Report shows lamb numbers are down, but the sector is showing resilience

Beef + Lamb New Zealand's latest Lamb Crop Report has revealed a significant reduction in lamb numbers for 2024.

The report shows a decrease of 1.1 million lambs, representing a 5.2% drop from last year's figures. The total estimated lamb crop stands at 19.2 million, with final South Island numbers expected closer to Christmas.

While the North Island experienced excellent lambing conditions, the South Island faced considerable challenges. Wet weather and snowstorms in Southern regions impacted lamb survival, though not as severely as initially anticipated.

The reduced lamb crop translates to a forecast 6.5% decrease in export lamb numbers for the entire season. Interestingly, similar production challenges in Australia might tighten global supply, potentially leading to stronger international market prices.

Processing capacity is set to be significantly affected. Export lamb processing is forecast to drop 11% in the three months leading to Christmas, with stark differences between islands. The South Island expects a dramatic 22% reduction, while the North Island anticipates a modest 2.4% increase.

B+LNZ Chair Kate Acland offered a balanced perspective, highlighting farmers' resilience. Despite challenging conditions, early-season farmgate prices for sheepmeat remain higher than last spring, and cattle prices continue to show strength.

While the numbers present challenges, the tone from industry leaders remains cautiously optimistic about the sector's ability to adapt and overcome.

Forestry restrictions spark land management debate

The government has ignited a heated debate about rural land management with new restrictions on full farm-to-forestry conversions, drawing mixed responses from agricultural and forestry sectors.

Federated Farmers welcomed the move, describing it as a necessary step to halt the "relentless march" of pine trees across productive farmland. However, the Forest Owners' Association has strongly criticized the policy, arguing it could compromise the country's climate change targets.

Forest Owners' Association Chief Executive Dr. Elizabeth Heeg has characterized the approach as treating rural land management "like it's playing with Lego". She argues the policy is a "blunt tool" that will prevent sufficient tree planting to effectively address climate challenges.

Agriculture and Forestry Minister Todd McClay defended the governments approach, emphasizing the policy represents only part of the broader strategy. He suggested an upcoming announcement about tree planting on Crown-owned land with low farming or conservation value, and stressed that farmers can still plant trees.

The minister remains confident New Zealand can meet its 2030 climate targets without purchasing international carbon credits. 

Dr. Heeg contested the need for such restrictions, pointing out that forestry land remains lower than 20 years ago. She argues recent land conversions are part of a natural agricultural cycle and that the concerns are overblown.