Speaking at the National Dairy Committee meeting, Chairman Kevin Kiersey said that, while dairy markets had weakened, co-ops should approach milk prices cautiously in coming months, to avoid making rash decisions which could have a major impact on farmers’ profitability and confidence.
He said the recent turnaround in the Fonterra auction prices showed that buyers agreed with market analysts that prices could recover in the second half of the year, as global milk supplies come more into line with still robust international demand.
“I am concerned by some of the comments made by co-ops in recent times on milk prices. It is important to remember that farmers will need to invest on their farms for expansion. They are facing increased input costs, some will have to pay significant superlevy bills, and that the industry will also call on them to contribute towards the funding of processing expansion. None of this can happen without profitability and confidence, and excessive or premature price cuts can destroy both,” Mr Kiersey warned.
Mr Kiersey added that the latest Fonterra auction, which saw an average 1.5% price increase, could augur well for a second half recovery in global dairy commodity prices. While an average 1.5% lift can seem modest, the auction saw a major positive price turnaround of 8.3% for the prices of butteroil (AMF), 13 to 14% certain protein products (casein, MPC) and cheddar cheese. SMP prices, while very slightly weaker for the period to June, are actually increasing by 3.3% for the October to December 2012 contract period.
“Co-op boards will be sitting down to examine the March milk price. I urge them to act prudently towards their suppliers and to minimise any price adjustment over peak,” he concluded.