As noted by DairyReporter, the Fonterra cooperative in New Zealand has cited improved supply and demand dynamics but has warned of long-term uncertainty.

First Seasonal Increase

As a result, Fonterra has increased its farm-gate milk price forecast range by 50 cents compared to the previous month. The cooperative's payment price for this season is now between 6.50 USD and 8.00 USD per kilogram of milk solids (kgMS), with an average point of 7.25 USD per kgMS.

This is the first price increase made by the cooperative in this season, which began with a price forecast of 7.25 USD - 8.75 USD per kgMS in May 2023. In August, Fonterra issued two revisions, reducing the New Zealand milk price to 6.00 USD - 7.50 USD (which took place in September).

Regarding the increase, CEO Miles Hurrell stated that the cooperative expects collections to be slightly below the previous season, and he suggested that weather events could have an additional impact on supply in the coming months.

"Here in New Zealand, we forecast that collections will be slightly below the previous season, while aggregate milk growth in key export countries is expected to be below average for FY24," he said. "The El Niño weather phenomenon could have an additional impact on supply, and this could influence recent buyer sentiment.

"On the demand side, we have seen increases in recent global dairy trade events. While this has been encouraging, it is not yet clear if the stronger demand from China will be sustained. For other key regions, customers remain relatively cautious about their forward purchases.

"It is still early in terms of the proportion of our FY24 sales book that we have contracted, so we still face significant exposure to commodity price volatility. Exchange rate volatility is another factor to note.

"Our foreign exchange risk management strategy is designed to help mitigate this and also supports a higher level of advance rate than would be possible without coverage.

"We will continue to inform our farmers and the market as soon as we believe things have materially changed."

Demand-Led Resurgence

In its Q3 report, "Progressing Past the Pain," Rabobank theorized that the slowing global milk production is starting to catch up with the growth in demand in most regions, which could lead to an increased resurgence in dairy markets as buyers rush to secure goods at lower prices.

However, if milk production does not rebound to meet this demand, an optimistic start to 2024 could be in the cards.

Senior agricultural analyst Emma Higgins explained that milk production in the seven major export regions, including New Zealand and Australia, should grow by 0.3% annually in 2023 (down from 0.7%) due to reductions in most regions, including the US, Europe, and New Zealand.

Meanwhile, despite strong demand from China, the region still accounted for 30-40% of GDT sales starting in the second quarter, and demand from the second-largest dairy importer, Mexico, was also strong.

At the same time, the Class III milk price in the US and the GDT-weighted average have both decreased in recent weeks.

Fonterra reported a farm-gate milk price for the 2022/23 season of 8.22 USD per kgMS and a full-year milk collection of 1,480 million kgMS.