Cream rises
Price jump pushing dairy payout higher
Another strong GlobalDairyTrade auction has put pressure on farmgate milk prices just weeks after the main dairy companies upgraded them.
The auction showed that prices, as measured by the GlobalDairyTrade (GDT) price index, were up by 3.5 per cent — the fourth significant gain in a row.
Wholemilk powder prices, which have the greatest bearing on Fonterra’s farmgate milk, rose by 4.9 per cent to US$3593 a tonne — well ahead of the generally accepted comfort level of around US$3000 a tonne.
Fonterra last month increased its 2016/17 farmgate milk price by 75c to $6 per kg of milk solids.
Combined with the forecast earnings per share range of 50c to 60c, the total payout available to Fonterra farmers in the current season is forecast to be $6.50 to $6.60 a kg, before retentions.
Open Country Dairy — the second biggest dairy processor after Fonterra — has raised its forecast to $5.60 to $5.90 a kg and Hokitika-based Westland Milk Products now has a forecast of $5.50-to-$5.90/kg. Canterbury’s Synlait Milk has matched Fonterra’s milk price at $6 kg.
All farmgate milk price forecasts from the main companies are now well ahead of DairyNZ’s estimate of breakeven at $5.05/kg.
ANZ’s rural economist Con Williams said the current market indicators are now pointing toward a $6.40 to $6.50/kg milk price in 2016/17, assuming current prices can hold through the remainder of the season.
“All up, tight supply dynamics re- main price-supportive both here and abroad, but we expect some improvement in supply conditions in the New Year period,” Williams said.
The European Commission is beginning to sell down some of its stockpile this month, which Williams expected to take some heat out of prices sometime in the new year.
“Still the moderation is likely to deliver something north of current dairy processors’ forecasts, and on that basis we increase our milk price forecast to $6.25/kg,” he said.
ASB’s Nathan Penny said his long held $6/kg forecast was under review. He said whole milk powder prices may have further to go, and may challenge US$4000 a tonne in the New Year, based mostly on declining production here and around the world.
“In particular, we expect the data on New Zealand and European Union production are set to get worse before they get better,” Penny said.
ASB expects New Zealand production to fall by 5 per cent over the season as a whole from the 3.1 per cent decline for the season to date.
Westpac economists raised their farmgate forecast to $6.20 a kg from $5.80.
“The biggest surprise this year has been the remarkable rebound in dairy prices,” said Westpac senior economist Anne Boniface.
“At the start of the year, dairy farmers were staring down the barrel of a third consecutive season of losses. But the more than 50 per cent rebound in dairy prices since midyear has significantly improved the outlook for the sector,” she said.
“We are now forecasting a $6.20 milk price this season which should be well above break-even levels for most farmers.”