Farmgate prices rise as farmers rebuild confidence
Sheep and beef farmers are cautiously optimistic as farmgate prices continue to firm.
The futures prices just prior to the auction were weak and indicating a fall in the 5% range, Penny told Dairy News.
“The futures market doesn’t cover everybody; not all milk buyers are in that market. As we have seen, perhaps some of those who were not in that market came into the dairy auctions.
“We suspect it may be Latin American buyers looking to get hold of products from New Zealand because they can’t now get it from Argentina. That appears to have supported prices which in the end was a pleasant surprise.”
Argentina is a major whole milk powder exporter but production is limited due to floods.
However Penny expects prices to remain static for the rest of the season, but pick up in the new season.
“We’ve got a bit of a correction this year so far based on good production: we’ve had a good summer and now a good autumn, so there’s a bit of extra milk hence prices have come down to reflect that.
“But looking over the rest of the season and even into next season we can see prices lifting gradually over the year.”
European production was falling heavily, but over the last two-three months that fall appears to have stopped.
“The fact it is not falling at a rate of knots is enough to make a difference.
“US production is strong – looking at 2.5% which is quite high for them in terms of annual growth.”
The ASB is holding its farmgate milk price forecast at $6/kgMS for 2016-17 increasing to $6.75/kgMS.
At last week’s auction whole milk powder (WMP) was up 2.9% to an average price of US$2855/t. Skim milk powder (SMP) was down 10.1% to US$1948. Anhydrous milk fat (AMF) was up 3% to US$5799 and butter was up 4.9% to
US$4910. Overall the GDT price index has risen 54.7% over the last year.
Westpac senior market strategist Imre Speizer also says the GDT was stronger than the futures market had predicted. While demand from China dipped a bit lower, overall demand was sufficient to absorb the 10% rise in WMP on offer.
“However with supply trends in both NZ and Europe improving, the market will continue to be challenged by rising supply.”
Payout intact
Fonterra keeping the 2016/17 forecast milk price at $6/kgMS was expected although there was a small risk they would change, says Nathan Penny. However the earlier earnings per share forecast of 50-65c has dropped down to 45-55c.
“That indicates profits aren’t as strong as they thought it would be,” says Penny.
“But the way they have offset it, they appear to be looking to pay a larger share of that to farmers. So they are looking to pay 40c as the cash dividend which in a way negates the slightly lower earnings per share for farmers.
“Fonterra is going to take that little big extra out of its own balance sheet and give it to farmers.”
Overall, he says, the results are not much change from what we knew – although slightly behind earlier indications.
