Dairy prices on the rebound?

New Zealand’s second biggest dairy cooperative Westland Milk Products this month announced a 20% increase.

The company’s forecast average operating surplus has increased to $4.75 - $5.15/kgMS and the average cash payout range has increased to $4.55 - $4.95/kgMS.

Chairman Matt O’Regan says this results from a recent uplift in world dairy prices for the products Westland produces, plus positive August GDT auction results.

The country’s second biggest milk processor, Open Country Dairy, now forecasts a range of $4.60 - $4.90/kgMS, up from $4.25 - $4.45/kgMS.

However, OCD is cautioning farmers about a risk prices will dip.

In a letter to Open Country farmers, the company says while market indications are more positive than last season due to shrinking global milk supply, the risk remains of European farmers responding to the brighter milk prices by increasing their milk production again.

Fonterra recently upgraded its milk price forecast for this season by 50c to $4.75/kgMS.

Combined with the forecast earnings per share range for the 2017 financial year of 50-60 cents, the total payout available to farmers in the current season is forecast to be $5.25 - $5.35/kgMS before retentions.

The lift in prices has also improved the advance rate payable to farmers.

Westland chairman Matt O’Regan says the advance rate payable this week has been approved at $3.80/kgMS.

“In line with the revised forecast payout, the board has also revised the 2016-17 season advance rate schedule and extended the $3.80/kgMS rate for one month to include November milk supplied, payable 20 December 2016.”

O’Regan says despite the uplift, the strong NZ dollar continues to be a challenge along with the short-term over-supply of international markets.

For OCD, the low price of oil was also a worry; key dairy importing countries rely on oil for purchasing power.

Oil was still at US$45/barrel versus the US$100 it was fetching between 2010 and 2014, the company said. The strength of the NZ dollar against the US dollar was also negating some benefits of the recent price rises.

Open Country increased its cash advance rates for November to January-supplied milk to $3.45/kgMS.