Dairy eyes third year of cream

Major bank economists expect milk prices to stay above $6 a kg in the coming season.

New Zealand dairy farmers look set to enjoy what may become the third year in a row of $6-plus milk prices in the coming season, economists say. Fonterra has a milk price forecast of $6.55/kg of milksolids for the current season, which ends on May 30. That’s up from $6.12/kg in 2016/17. Another strong milk price will allow farmers to further repair damage to their balance sheets incurred when it dropped to $4.40/kg in 2014/15 and $3.90/kg in 2015/16, after a record $8.40/kg in 2013/14.

Fonterra is expected to issue its opening forecast for the coming 2018/19 season later this month. All the major bank economists expect to see a $6-plus milk price, and some expect to see a small upward revision to the current forecast for 2017/18,

thanks in part to recent weakness in the kiwi.

Rural lending specialist Rabobank said the season could get off to a “shaky” start but it expects a strong finish to a milk price of $6.40/kg.

The bank’s dairy analyst Emma Higgins said the 2018/19 season should be profitable for most dairy farmers, despite greater uncertainty surrounding their operating environment.

One of the global risks looming is the peak period of milk production in the Northern Hemisphere, she said.

“The Northern Hemisphere flush will be an influential pressure point for commodity prices at the start of the 2018/19 season and we anticipate that supply will outstrip global demand in the coming months. “However, as the second half of the 2018/19 season develops, Rabobank anticipates com

modity prices will improve as production

growth from key exporting regions decreases and a robust import programme by Chinese buyers supports commodity prices across this period,” she said.

ANZ rural economist Con Williams said conditions for farm-gate returns in the dairy sector remained favourable.

“Broadly, we see global milk supply growing at, or slightly below, trend with a number of country-specific limitations and the marginal cost of production lifting,” he said.

“With whole milk powder holding in a broad US$2800 to US$3300/ tonne range, New Zealand skim milk powder continuing to attract a premium versus other suppliers, and milkfat prices set to follow a similar pattern to 2017/18, this gives a farm gate milk price range of mid-to-high $6/kg,” he said.

ANZ is picking an opening milk price of $6.75/kg.

ASB Bank rural economist Nathan Penny said a slight upgrade to the current season’s milk price was possible. He expects a 2018/19 forecast of around $6.50, with potential to go higher.

“We have been optimistic that [dairy] markets have been quite balanced At $6-plus, most farmers will be in the black,” he said.

“The majority will be able to pay down debt that they may have incurred over the downturn,” he said.