Season ends upbeat
The dairy season has ended on a high, with prices at the latest Global Dairy Trade (GDT) auction lifting 1.9 per cent overall to reach US$3637.
This contrasted with the auction two weeks ago when prices dipped 1.1 per cent. The key whole milk powder (WMP) index slightly underperformed expectations, up just 0.2 per cent to US$3226. Recent falls in the value of the New Zealand dollar will be positive for dairy farmers.
Economist Cameron Bagrie told dairy farmers at a forum in Waikato recently that he predicted the New Zealand dollar could fall to 65 cents to the US dollar.
‘‘The one we could potentially see here that could put the dairy sector in a cashflow sweet spot is movement in the New Zealand dollar.’’
Bagrie said US interest rates were heading higher than New Zealand, which normally saw the New Zealand dollar sit down around 60c, he said.
‘‘I don’t think the dollar is going to 60c, but I can easily fathom a case where the New Zealand dollar goes to 65c. If we can see commodity prices hold or just be a little bit weaker and we get that 10 per cent kick from the NZ dollar...the cash flow returns are going to look pretty good.’’
‘‘I think the New Zealand dollar is still going to weaken - my personal view is 65c in 12 months. That can provide a lot of cream into the dairy sector cashflow wise if you can get commodity prices to hold up,’’ Bagrie said.
Federated Farmers dairy chairman Chris Lewis said the latest prices should support farmgate prices. Open Country Dairy recently announced an opening forecast for the 2018-19 season of $6.35-65.
He predicted Fonterra, which is due to announce a forecast price later this month, of going slightly higher than OCD.
‘‘But we don’t want dairy companies to over promise and raise expectations. It’s easy to go high, but much harder to bring it down.’’
‘‘While we know it’s only a forecast, some people take it as gospel.’’
Lewis said he had attended a dairy awards event recently where the mood had been subdued.
‘‘There’s not a lot of confidence in dairy farming, people are not expanding their business at the moment.’’
In other results, the anhydrous milk fat index rose 5.8 per cent, skim milk powder (SMP) was stronger than expected with a lift of 3 per cent, and butter was up 2.4 per cent.