Dairy prices down as are costs
Dairy prices are easing but cost inflation is down across the board, providing some relief to farmers.
Export commodity prices have started 2018 on a firm footing thanks in part to the buoyant global trade backdrop.
The weaker New Zealand dollar over the course of 2017 has also boosted farmgate returns. Recent dairy auction prices have led us to revise upward our payout forecast to $6.50/kgMS.
Yet despite the solid start to the year, we remain wary of the impact slower Chinese growth may have on demand for NZ’s commodity exports over the course of 2018.
Locally, weather remains challenging for farmers up and down the country.
On balance, we expect milk collections this season to be broadly on par with the 2016-17 season (although greater use of supplementary feed and poor pasture in some areas may have a bigger impact on fat content).
Fears of tighter international supplies, particularly for whole milk powder, helped dairy prices squeeze higher in the first few Global Dairy Trade auctions of 2018. Overall prices rose 5.9% in last week’s auction, including a 7.6% gain for whole milk powder.
Higher auction prices have led us to upgrade this season’s milk price forecast to $6.50/kg, slightly ahead of Fonterra’s estimate. But we continue to caution against extrapolating recent trends too far into 2018.
Our view remains that growth amongst NZ’s key trading partners is likely to slow this year, led by China. Chinese policymakers are poised to follow through with moves to rebalance their economy, reduce the risks generated by rapid credit expansion and put the economy on a more sustainable growth path.
And while the consumer sector isn’t the focus for Chinese policymakers, they are unlikely to escape a period of slower growth completely unscathed. With China such an important market for almost all NZ commodity exporters, this could see NZ’s prices soften as 2018 progresses.
• Anne Boniface is a senior economist with Westpac and this article appeared in the bank’s latest Agri Update.
The country’s 4200 commercial fruit and vegetable growers will vote from May 14 on a new HortNZ levy.
Meat processor Alliance Group is asking farmer shareholders to inject more capital in order to remain a 100% co-operative.
A vet is calling for all animals to be vaccinated against a new strain of leptospirosis (lepto) discovered on New Zealand dairy farms in recent years.
Dairy
Rural banker Rabobank is partnering with Food Rescue Kitchen on a new TV series which airs this weekend that aims to shine a light on the real and growing issues of food waste, food poverty and social isolation in New Zealand.
Telco infrastructure provider Chorus says that it believes all Kiwis – particularly those in the rural areas – need access to high-speed, reliable broadband.
OPINION: Talking about plant-based food: “Chicken-free chicken” start-up Sunfed has had its valuation slashed to zero by major investor Blackbird…
OPINION: Synlait's financial woes won’t be going away anytime soon.