Fonterra announces opening milk price for season 2024-25

It is the first of the major processors to announce its new season price.

In a letter to suppliers, Fonterra Australia managing director René Dedoncker said the price fall reflected the shift in market conditions.

"In recent years, our industry has seen higher commodity prices, stronger consumer demand and a shortage of milk to meet this demand," he said.

"However, heading into FY25, the global market for cheese, which is a strong contributor to our prices, has declined since the start of FY23.

"Cost of living pressures have led to softer domestic consumer demand and higher volumes of lower cost dairy imports.

"This, together with increased milk production in all dairy regions, has contributed to excess cheese inventory in the Australian market driving pricing down further."

Mr Dedoncker also moved to reassure farmers that Fonterra's plans to sell off its Australian business would have no impact on the business.

"We are well placed to manage through the dynamic market conditions and remain a secure home for your milk," he said.

"We have a strong business with choice in which markets and channels we serve, as well as the products we make.

"If a divestment was to go ahead, we intend to include all existing milk supply contracts in place at the time of sale.

"These contracts are vital to our business, and any purchaser of the business would be obliged to comply with the terms of agreements until expiry of the term of the agreement."

Mr Dedoncker said Fonterra was committed to paying a competitive milk price and would review its prices bi-monthly.

It would pass on price increases when supported by the market and the business performance.

The fall is roughly in line with forecasts.

Rabobank, in its Australian Dairy Seasonal Outlook 2024, 'Walking a Tightrope', released in May, forecast a minimum farmgate milk price range of $8-8.20/kg MS.

ABARES forecast the Australian farmgate milk price to fall 6 per cent in 2024-25.

It is also roughly in line with Fonterra's forecast price for its New Zealand farmers.

Fonterra on May 29 announced an opening forecast farmgate milk price range of $NZ7.25-NZ8.75/kg MS (midpoint $NZ8/kg MS) for its NZ suppliers.

Fonterra chief executive officer Miles Hurrell said milk supply and demand dynamics remain finely balanced.

"China import volumes have not yet recovered to historic levels," he said.

"Given the early point in the season, the uncertainty in the outlook and ongoing risk of volatility in global markets, we are starting the season with a cautious approach."

Mr Hurrell said Fonterra had "received a high volume of interest from parties looking to be involved" in buying the consumer business, including its Australian operation.

"It's still early days in this process, and we commit to providing farmer shareholders, unit holders, our people and the market updated on new developments as they occur," he said.