Richard Allen: Fonterra CEO explains cuts to the 2026/27 Milk Price Forecast
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What is the main topic discussed in this episode?
Did you see what just happened? No, I was back to you. I'll arrange an apartment presentation tomorrow. Oh, oh. Sujuu kuin sato. Huokraa elämäsi koti. Sato.fi To the farm, where supplied milk product has presented an issue in terms of demand. Yesterday, Fonterra cut its farm gate forecast. New range for 26-27 is 8-10-50. The midpoint down 50-9-25. Richard Allen is Fonterra's new-ish CEO and is with us. Very good morning to you. Morning, Mike. And congratulations on the job and all that sort of stuff. So far, so good. You haven't cocked anything up so far?
No.
I'm not the judge of that, but so far so good, thank you.
Why did Fonterra cut the 2026/27 milk price forecast from $9.75 to $9.25?
Very good. So what literally take us into the minds of the room where this happens? Why 9.50 to 9.25 and who pulls the trigger?
Yeah, look, we've seen prices decline on the global dairy trade auction about 11% since we came out with the opening forecast in May. That's largely off the back of two things. We have seen demand softer than we were probably anticipating, but also right around the world, including here in New Zealand, we've seen very strong milk supply growth over the last 12 to 18 months. So we had a bumper season last year here, just over 4% growth there. US, Europe also growing strongly. So that just puts more product into the market. Overall, demand is still there. It's just not quite as strong as we thought it was going to be.
So what's going to change, demand or supply, or both?
Probably a bit of both. Dairy does have the tendency to overreact a little bit. So we will probably see supply come off. We're already starting to see that in terms of some of the heat impacts in the EU and the US starting to bring milk off. Demand was starting to look quite good. Obviously, the disruption in the Middle East impacts consumer sentiment. So we have started to see that flow through a little bit. But overall, we're still in a pretty good position.
OK, so Westpac still at 950 and not changing. How close a call is yours or are they wrong?
Look, I mean, it's very early in the season and so we're probably all wrong, I'd say. You know, there's a lot of water to go under the bridge in terms of milk to be sold across the season. Every dairy season I've been in, there have been twists and turns that we didn't quite expect. So there will be twists and turns this season. I think we will be somewhere, you know, where we believe we are today is our best view. But again, you know, it's a volatile world out there. When you talk about El Nino, how do you get your head around that, given we don't know? We don't know.
What immediate market signals led to Fonterra lowering its midpoint payout?
Absolutely not. I think where we sort of come at it from is our farmers are much better prepared in terms of their preparations for drought on farm than they were probably 10, 15 years ago. So they plan for dry summers in parts of the country. we have more protection against that. Areas like Canterbury where we have a lot of irrigation, then those farmers are much more protected against weather patterns. But if it comes, I'm sure our farmers will have plans in place. There's pretty good supplementary feed on farm. We had a good growing season last year. But again, you've just got to take what comes and roll with it.
So what do you worry about more, the heat of the northern hemisphere or the heat of us?
Definitely I worry about our farmers more.
Is softer global demand or stronger supply driving the current dairy price decline?
The climatic conditions in New Zealand do have an impact on our farmers, have an impact on their ability to produce. So that's what we think a lot about. But again, our job is to pick up the milk and make the most money from it. Our farmers' role is to run their own farms.
And what's the equation around what may happen weather-wise versus the price going up through lack of supply versus what you lose through lack of production?
Look, it all comes into the mix. At the minute where we don't sort of take fixed point prices, we take scenarios. So we look at multiple different ways things could play out and we sort of adjust our tactics in line with that. We see a relatively strong milk season here in New Zealand again next year. So we're planning on good milk in New Zealand next year.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–0:41
2
Why did Fonterra cut the 2026/27 milk price forecast from $9.75 to $9.25?
0:41–2:28
3
What immediate market signals led to Fonterra lowering its midpoint payout?
2:28–3:09
4
Is softer global demand or stronger supply driving the current dairy price decline?
3:09–4:55
5
How might supply and demand dynamics change through the season and affect prices?
4:55–7:57
Speakers
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