Banks are mainly holding firm on their forecasts of $7/kgMS despite last week’s flat Global Dairy Trade result – a small decline of 0.4% in the overall price index.
"It is a case of coming through [the deficit] in the medium term and coming out the other side," he says.
Steed says the banking sector saw the agri sector as highly volatile. Sheep, beef and horticulture are doing reasonably well but dairy is going through volatility. "The role Westpac has -- and all banks -- is to manage that volatility, assist in the volatility variances in some way.
"Our role is very much to stand by the customers through the highs and the lows.
"We are obviously seeing the lows in the dairy sector. We are ensuring we come through that in a moderate kind of way. It is intriguing that a number of our dairy customers have some variances in their cost base when you think about production. Some have costs around $3.50/kgMS to as high as $5.50/kgMS and when you overlay the leverage on top of that, interest is another $1-$1.20/kgMS.
"So when you've got a payout at $4.60/kgMS that is going to be really challenging. We expect to have to support our customers to the tune of about a $2/kgMS deficit on the cashflow this year."