Monday, 28 May 2018 11:33

$7/kgMS payout tops forecasters’ range

Written by 
BNZ senior economist Doug Steel. BNZ senior economist Doug Steel.

Fonterra's $7/kgMS opening milk price is at the top end of the range seen by market followers and analysts.

“Hopefully it’s a conservative forecast,” Federated Farmers national dairy chairman Chris Lewis told Dairy News.

“It is definitely positive news and will be very much welcomed by farmers. 

“I guess for a lot of analysts and farmers who follow the USD, Global Dairy Trade and the futures it probably comes as no surprise that it’s a good figure.

“Commodity prices have been doing well for the past few months, the dollar has dropped: it’s down to US$0.69 and was down to 68.50 for a while; four months ago it was up in the mid 70s.”

The milk price is a little higher than he expected but a welcome surprise.

BNZ senior economist Doug Steel thought a range of $6.50 - $7/kgMS was possible based on current pricing and currency levels, so it is at the top end of that.

“It matches the previous highest opening forecasts [in the 2013-14 and 2014-15 seasons] from Fonterra. In those seasons, the first ended up at $8.40/kgMS, the second ended up at $4.40/kgMS. It’s a reminder that this is just a forecast and, like any forecast, has a fair margin of error around it.”  

Steel says for the 2017-18 season the milk price forecast lift to $6.75 from $6.55 was also at the top end of expectations, “but credible”. 

“Based on our calculations, they are consistent with international dairy prices and the currency remaining around current levels. Eyes are on the GDT auctions and FX market to see if this is how it plays out.

“Higher milk prices put pressure on Fonterra’s earnings (as an input cost to the business) which were already challenged by the payment to Danone and the impairment from the co-op’s Beingmate investment.”

 Overall the announcements indicate positive cashflow for the dairy industry ahead, says Steel. It will help NZ’s external accounts and economy. 

“For the Reserve Bank NZ it reinforces that international dairy product prices are running a touch above the bank’s medium term views and the currency is running lower than anticipated.”

 Fonterra forecasts a 1.5% increase in its milk collections next season, which is consistent with BNZ’s 2% pick for the industry as a whole. 

“As always the weather be a key factor in milk production over the season,” says Steel.

Fonterra chairman John Wilson says a continued positive global supply-and-demand picture gives the co-op confidence to increase its current forecast farmgate milk price into the new season. 

“Demand is expected to remain strong, especially from China and for butter and AMF. We are expecting the global dairy market’s current prices, especially for fats, to continue throughout the new season.

“We are also forecasting our NZ 2018-19 milk collections to be 1525 million kgMS -- a 1.5% increase on our current forecast for this season -- and we expect to see a lift in supply from the EU, US, Australia and Argentina. 

“We will announce our forecast earnings per share for the 2019 financial year in July as normal.”

Fonterra is required under the Dairy Industry Restructuring Act to announce its forecast milk price at the beginning of each season, starting June 1. 

More like this

"Our" business?

OPINION: One particular bone the Hound has been gnawing on for years now is how the chattering classes want it both ways when it comes to the success of NZ's dairy industry.

Dr Mike Joy says sorry, escapes censure

Academic Dr Mike Joy and his employer, Victoria University of Wellington have apologised for his comments suggesting that dairy industry CEOs should be hanged for contributing towards nitrate poisoning of waterways.

Farmer anger over Joy's social media post

A comment by outspoken academic Dr Mike Joy suggesting that dairy industry leaders should be hanged for nitrate contamination of drinking/groundwater has enraged farmers.

Farmers' call

OPINION: Fonterra's $4.22 billion consumer business sale to Lactalis is ruffling a few feathers outside the dairy industry.

Wasted energy

OPINION: Finance Minister Nicola Willis could have saved her staff and MBIE time and effort over ‘buttergate’ recently by not playing politics with butter prices in the first place.

Featured

Trial shows benefits of spring nitrogen use

A landmark New Zealand trial has confirmed what many farmers have long suspected - that strategic spring nitrogen use not only boosts pasture growth but delivers measurable gains in lamb growth and ewe condition.

Eric Roy: Championing the pork industry

It was recently announced that former MP and Southland farmer Eric Roy has stepped down of New Zealand Pork after seven years. Leo Argent talks with Eric about his time at the organisation and what the future may hold.

National

Machinery & Products

JDLink Boost for NZ farms

Connectivity is widely recognised as one of the biggest challenges facing farmers, but it is now being overcome through the…

New generation Defender HD11

The all-new 2026 Can-Am Defender HD11 looks likely to raise the bar in the highly competitive side-by-side category.

» Latest Print Issues Online

Milking It

Buttery prize

OPINION: Westland Milk may have won the contract to supply butter to Costco NZ but Open Country Dairy is having…

Gene Bill rumours

OPINION: The Gene Technology Bill has divided the farming community with strong arguments on both the pros and cons of…

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter