Wednesday, 04 March 2015 00:00

Happier dairy days ahead

Written by 
Fonterra chair John Wilson. Fonterra chair John Wilson.

The global dairy price slide seems to be over and farmers are banking on happier days ahead.

 Federated Farmers Waikato Dairy chairman Chris Lewis says a few more rises in the Global Dairy Trade (GDT) auctions will allow farmers to “hit the happy place for a while”.

Lewis says the positive in Fonterra’s decision last week to hold the milk payout at $4.70/kgMS was that the payout wasn’t reduced.

With most of the milk from this season processed and sold, Lewis says farmers are turning attention to the next season, starting June 1.

“Not only farmers but the banks and the business community are looking forward to the next season with confidence; we don’t expect a record payout but a middle range figure,” he told Rural News. “Farmers expect prices to hit the happy for a while.”

But for this to happen, GDT prices must continue to rise; since December, GDT prices for whole milk powder have risen 45% and skim milk powder prices 13%. WMP prices are hovering at US$3272/tonne and WMP US$2744/t.

Fonterra chairman John Wilson says the increase was not sufficient to raise the forecast milk price now.

On the coming season, Wilson says it’s difficult to predict prices so far ahead. “There is so much volatility, we are finding to difficult to forecast on a week-to-week basis, let alone 18 months.

“Significant volatility [continues] in international commodity prices. New Zealand volumes are down, with uncertainty in milk production due to… drought in Canterbury, Marlborough, Central Otago and North Otago.”

He says WMP prices must reach US$3500/t by April to sustain the $4.70/kgMS payout forecast.

The ASB Bank, which has lifted its forecast payout to $5/kgMS for this season, says it was “a touch surprised” by Fonterra’s decision.

For the coming season, the bank is forecasting an opening payout of $6.50/kgMS, based on a slowdown in milk supply growth in Australia, the US and Europe, drought in New Zealand and a rebound in demand in China.

ASB economist Nathan Penny says Fonterra has not taken into account the drop in the New Zealand dollar. But he concedes Fonterra’s hedging policy won’t allow it to reap the immediate benefits of the lower dollar.

BNZ economist Doug Steel isn’t surprised Fonterra stuck to the $4.70/kgMS forcast payout. There is too much volatility in the global markets for Fonterra to raise the forecast payout by a few cents and then get caught out by a big drop in GDT prices, he says.

Steel says dairy prices have clearly firmed but he cautions farmers against getting carried away by prospects for next season.

“We have gone from record highs to extreme lows within a few years,” he says. “The next season is looking better but we should not get too excited. Prices will push higher in the coming months and it’s all to do with the drought in New Zealand.

“Weather [permitting], production will recover in New Zealand next season and then further price increases will be capped.”

The BNZ is forecasting an opening payout of $6/kgMS for next season.

But Chris Lewis, Federated Framers, says with rising cost of production, debt servicing and capital costs, farmers need at least $7/kgMS for long-term sustainable business.

“Farmers will be keeping an eye on GDT and hoping the market finds a place for a fair value price; all farmers want is fair value for their hard earned product.”

Lewis says many farmers are struggling this season with $4.70/kgMS. “When the milk cheques arrive over the next six months, there will be a lot of negative financial figures on farms.”

Wilson says Fonterra is mindful of the tight cashflow and the struggles of dairy farmers.

“As a farmer, I know we all want a higher payout but farmers understand the global market dynamics. We are advising farmers to continue to be cautious with budgeting and we will update them as the season progresses.”

More like this

Returns lift, costs down - DairyNZ

The outlook for dairy farmers this season has improved, especially when compared to forecasts only six months ago, according to DairyNZ.

A significant fertiliser breakthrough?

Former ACT MP and Federated Farmers president Owen Jennings believes he's come across a new fertilising method in Australia that yields "outstanding results".

Marlborough drought declaration welcomed

Marlborough Federated Farmers has got some real concern about the mental wellbeing of farmers and their families in the region because of the drought and there’s a lot of pressure starting to build.

Featured

Sheep drench resistance costly

Analysis by Dunedin-based Techion New Zealand shows the cost of undetected drench resistance in sheep has exploded to an estimated $98 million a year.

Dairy sheep and goat turmoil

Dairy sheep and goat farmers are being told to reduce milk supply as processors face a slump in global demand for their products.

Hurry up and slow down!

OPINION: We have good friends from way back who had lived in one of our major cities for many years.

National

Knowing bugs means fewer drugs

A mastitis management company claims to deliver the fastest and most accurate mastitis testing available at scale for New Zealand…

Machinery & Products

AGTEK and ARGO part ways

After 12 years of representing the Landini and McCormick brands in New Zealand, Bay of Plenty-based AGTEK and the brands’…

100 years of Farmall Tractors

Returning after an enforced break, the Wheat and Wheels Rally will take place on the Lauriston -Barhill Road, North-East of…

JD unveils its latest beast

John Deere has unveiled its most powerful tractor ever, with the launch of the all new 9RX Series Tractor line-up…

Biggest Quadtrac coming to NZ!

In the biggest announcement that Case IH Australia/New Zealand has made around its tractor range, its biggest tractor is about…

» Latest Print Issues Online

The Hound

Why?

OPINION: A mate of yours truly wants to know why the beef schedule differential is now more than 45-50 cents…

Fat to cut

OPINION: Your canine crusader understands that MPI were recently in front of the Parliamentary Primary Sector Select Committee for an…

» Connect with Rural News

» eNewsletter

Subscribe to our weekly newsletter