No cream coming from Fonterra
All the money’s on Fonterra announcing a new season milk price forecast in the $4 range – an improvement but not enough to get dairy farmers into greener pastures.
Farmers, bank economists and industry observers are unanimous the 2016-2017 forecast, tipped to be announced on May 25 or 26, will be under $5 a kg of milksolids, with most picking the $4.50 mark.
Fonterra is also expected to update the current season’s forecast, now sitting at $3.90.
Any milk price under $5 will challenge many businesses to make a return, ANZ economist Con Williams said.
‘‘For sustainable profitability and new investment (of capital and people) in the industry a milk price in the high $5 to $6 is needed,’’ he said.
The nine-year average milk price had been $6.35, before international commodity prices started to slump at the end of the 2013-2014 season, he said.
A milk price in the low $5 range would be helpful for approaching break-even, but would still be a disincentive to investment in the industry and would not be sustainable.
Williams expected the 2015-2016 final milk price, which will not be known until October, not to shift much from $3.90 – ‘‘maybe 5c either side’’.
There are also renewed calls for the big dairy co-operative to issue its new season forecasts earlier than the end of May, the deadline required by dairy industry legislation, because by now farmers have had to do their budgets and sign up to service provider contracts based on a ‘‘guestimate’’.
Williams goes further. He wants Fonterra to disclose every month three pieces of information – its latest milk price forecast; the year-to-date milk price achieved; and the milk price achieved for the month.
‘‘Then people can apply those numbers to their business how they see fit, but they would get a better sense of where the price is during the season. So if you’re halfway through the season and the milk price forecast is $4.50 but year-to-date it’s only $4, then that’s quite a lot of downside risk and they can manage their risk accordingly,’’ he said.
BNZ economist Doug Steel said a monthly forecast update would be helpful.