“There’s no hiding behind that.”
One reason behind the decision was a series of poor Global Dairy Trade (GDT) auctions, including the latest event, which dropped 4.3 per cent — its biggest fall since April.
“That was probably the real kicker for us, we expected things to maybe stabilise and plateau for a period.”
This, coupled with a short-term outlook that was “not great”, meant the co-op had to make the tough call to let farmers know the midpoint was dropping by a dollar, Hurrell said.
“We thought, we’ve got to get out there, and as ugly as the dollar is, it’s important that we get the news out there as fast as we can.”
Since announcing an opening forecast in May, GDT whole milk powder prices have fallen 12 per cent, and China’s share of whole milk powder volumes on GDT events has tracked below-average levels.
Despite this, Hurrell maintained the dairy industry was not in crisis.
“The position for dairy in the global context on a long-term basis is still very positive.
“We just need a bit more milk in the China market.”
China’s economy was slowly seeing signs of recovery, post severe Covid lockdowns, and domestic milk production was on the rise too, he said.
“[This] coincides with a little bit more sluggish demand, so all of that has meant us having to look at our milk price forecast for the year.”
Hurrell remained upbeat about global supply and demand, however.
“If you look at the international market ... here, we’re seeing a demand issue but we’re not seeing a whole lot of milk out of Europe and North America.
“So that gives me some confidence that should we see demand pick up in the medium term. We should see our way through this at some point.”
As for a milk price forecast revision in 2024, Hurrell said it was too early in the season to speculate.
“I know that a lot of farmers work their budget off a midpoint but we put a range out there because things are so volatile in the international market.
“We’re so early in the season — we [have] quite [a] low [level of milk] contracted ... so there’s a lot to play out.”
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Another factor putting pressure on farmers was a rise in the cost of production.
Hurrell said on-farm costs were beyond Fonterra’s control, but there were “signs of life” that fertiliser prices were dropping.
However, conditions were still difficult, he said.
“Make no bones; this is tough and it’s tough for our farmers.
“We need to lean into this and do everything we can to support them at this time.”
Mackay asked what that support would look like and whether Fonterra would cull any “nice to haves”.
“We have to, 100 per cent,” Hurrell said.
“We’ll be looking at all our costs that we can control but at the same time looking at … what we can do to support farmers with on-farm costs through our Farm Source model.
“So yeah, we’re leaning into everything, as we speak.”
